The last few months were supposed to have brought a victory lap for the North American trade relationship, with the implementation of the United States Mexico Canada Agreement providing a new level of certainty for companies.
But for the Canadian province of Quebec, which has operated an office in Georgia since 1978, the period has come with another capricious U.S. move that will strain industries recovering from the pandemic.
The U.S. on Aug. 16 slapped a 10 percent tariff on commodity-grade aluminum in response to a purported “surge” of imports from Canada over the preceding month. Two American companies — Century Aluminum and Magnitude7 — petitioned for the tariffs. President Trump announced them during a campaign stop in Ohio.
Quebec had heard rumblings that more tariffs were in the works but were hopeful amid optimism around the NAFTA replacement that went into force July 1.
“We were happy to see that we have a predictable and stabilized market regulation system,” Donald Leblanc, Quebec’s delegate in Atlanta, told Global Atlanta. “This was certainly not expected.”
Opponents of the tariffs say the basis for them is unfounded based on trade data. It’s true that exports of aluminum ingots from Canada to the U.S. rose this year as COVID-19 dented demand for the value-added variety used in automotive production. (Smelters had to keep producing.) But as the economy started to recover over the last two months, they dropped 40 percent, reflecting a normalization of the market.
“We are seeing a clear shift as production rebalances after producers shifted from value-added products as a result of the economic reactions from COVID-19,” Jean Simard, president and CEO of the Aluminum Alliance of Canada, whose members include Alcoa and Rio Tinto, said in a statement.
Others in the sector have joined Mr. Simard in arguing that the tariffs will benefit China and Russia, which are looking for further openings into the North American market at a time when demand is already down 25 percent year to date.
“This Groundhog’s Day revival of Section 232 tariffs on a key trading partner does not address the underlying issue of China’s overcapacity and makes U.S. aluminum companies less competitive when trying to sell their goods to industrial customers across North America,” Tom Dobbins, president & CEO of the Aluminum Association — which represents producers like Atlanta-based Novelis Inc. which employ 700,000 people in the U.S.— said in a statement.
Meanwhile, increased tariffs will raise costs for companies like Coca-Cola Co. — which opposed earlier Trump tariffs on the metal — and Novelis, which provides rolled aluminum as well as alloyed material for auto parts.
Canada is mulling an equal 10 percent retaliatory duty on $2.7 billion in U.S. products. Within Georgia, that includes $173 million in locally made livestock trailers, sheet metal, building parts, furniture and more that would be subject to the tariff starting Sept. 16, Mr. Leblanc said.
Canadian officials say they would prefer not to have to make that move, and Mr. Leblanc is joining other Quebec delegates around the U.S. enlisting allies among business groups, trade associations and economic development agencies to press the case with the U.S. government.
The Georgia Department of Economic Development, which just announced its Canada trade and investment office would move to Montreal, does not lobby directly but does encourage companies to let their elected officials know how tariffs might affect them, according to a spokesperson.
Why is aluminum such a priority for the French-speaking province? With affordable hydropower, Quebec is home to the majority of the country’s smelters, many of them financed by American investors. Quebec accounts for 90 percent of Canadian aluminum production and 40 percent of what’s imported into the U.S. from all countries, Mr. Leblanc said. Aluminum was the province’s No. 2 export after the aerospace sector last year.
Mr. Leblanc noted that his main pitch to allies will focus on the shared competitiveness that comes with integrated and complementary North American supply chains: The U.S. reportedly produces just 1 million tons of the 5 million tons of aluminum it consumes per year, and total trade in aluminum between the U.S. and Canada — raw materials and finished goods — is about $8.4 billion.
“Part of the advocacy is really to get back to this very basic idea that we have this framework in North America. We are integrated, so each time you bring some impediment to trade, it’s a lose-lose situation for both economies,” he said.
Allied countries have long contended that China’s overcapacity in the sector is the main force undercutting U.S. production. Industry officials say that Glencore, a Swiss trading firm with ties to Russia’s Rusal, has a 47 percent stake one of the American petitioners — Century Aluminum — that would benefit most from prices staying high.
With this in view, Canadian Consul General Nadia Theodore reiterated Canada’s stance that using national security as the basis for imposing such tariffs on a staunch ally is “unwarranted and unacceptable.”
She also noted that of the 162,000 aluminum industry jobs in the U.S., 97 percent depend on a mix of American and imported aluminum, which primarily comes from Canada.
The new USMCA, meanwhile, contains an explicit nod to regional integration in the sector. The new deal requires that 70 percent of the aluminum and steel used to make an automobile must be produced within the three party countries to qualify for duty-free treatment.
While Mr. Leblanc and his team are working remotely due to COVID-19, having a longstanding office in Georgia (one of eight Quebec outposts around the U.S.) will help in outreach on what he deems to be a critical short-term objective in the trading relationship.
“When these kinds of thing happen, we’re happy to be able to at least be able to speak to the right people in the different business organizations, and this is because they know us and they trust us.”