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The Quick Take: May 31, 2018

The Potential Impacts of Steel and Aluminum Tariffs on Canada and the U.S.

Michael Burt
Executive Director
Industrial Economic Trends

“Tariffs could hurt the U.S. just as much as (or more than) Canada, since so many industries use steel and aluminum as an input. The steel-consuming industries are a much larger share of the economy than steel producers. For instance, industries such as construction, automotive, aerospace, food and beverage manufacturing would be negatively impacted by tariffs by boosting input costs (which could be passed on the customer, thereby raising consumer prices). Construction, autos and machinery manufacturing comprise 80 per cent of total domestic steel consumption and their input costs would rise. With costs going up, jobs and prices would take a hit.”

Impact on the U.S. Economy

The President supports across the board tariffs of 25 per cent on steel imports and 10 per cent on aluminum as part of his “America First” agenda.

Domestic steel and aluminum prices would rise sharply and provide a temporary support for domestic steel and aluminum producers.

For instance, industries such as construction, automotive, aerospace, food and beverage manufacturing would be negatively impacted by tariffs by boosting input costs (which could be passed on to the customer, thereby raising consumer prices). Construction, autos and machinery manufacturing comprise 80 per cent of total domestic steel consumption and their input costs would rise. With costs going up, jobs and prices would take a hit.

Higher prices are likely in automobiles and household appliances.

The overall impact on the U.S. economy would be a net negative as positive effects of higher aluminum and steel industries would be outweighed by the negative impact for U.S. consumers paying higher prices.

Unless a trade war breaks out, the impact of the tariffs on U.S. economy would be minor—steel and aluminum imports account for only 0.2 per cent of GDP while domestic production is less than 0.5 per cent.

Consequently, tariffs would move GDP growth by only a basis point or so.

The employment impact also minimal—iron and steel producers employ 85,000 people today while aluminum producers employ 60,000.

Employment in both industries remains below early 1990s levels and are unlikely to change significantly because of new tariffs.

Tariffs on steel and aluminum, however, could lead to retaliation from trading partners.

China, which produces half of the world’s steel, could retaliate. They have already initiated an anti-dumping investigation into U.S. soybean and sorghum exports.

China has already been hurt by U.S. tariffs on solar panels and washing machines, and steel and aluminum tariffs would add fuel to the fire.

US agricultural and high-tech exports could be in China’s crosshairs for retaliation.

Impact on the Canadian Economy

Canada is the largest exporter of steel to the U.S.; China ranks 11th.

Canada would be hit hard as approximately 85 per cent of its steel and aluminum exports are destined to the United States. Canada is one of the biggest providers of steel and aluminum to the U.S., accounting for around 16 per cent of U.S. steel imports and about 40 per cent of U.S. aluminum imports.

Canada exports $7.2 billion in iron and steel, $5.7 in articles of iron and steel, and $11 billion in aluminum and aluminum articles.

In 2016, Canada exported 5.4 million metric tons to the U.S. but bought more U.S. steel exports.

In 2017, steel and iron and articles accounted for about 3.1 per cent of Canadian merchandise exports to the U.S., while aluminum and articles accounted for approximately 2.7 per cent (source: Strategis Canada Trade Data Online).

Infographic: Impact of steel and aluminum tariffs

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