Subscribe
PurchasingB2B

Steel tariffs will drive up cost of military gear: ministers

Defence industry in both countries are among some of the world's largest steel and aluminum consumers


June 5, 2018
The Canadian Press
The Canadian Press

OTTAWA—The Trump administration’s decision to impose punishing new tariffs on Canadian steel and aluminum could have dire consequences for Canada’s defence sector and drive up the price of new military equipment, federal ministers said.

U.S. Commerce Secretary Wilbur Ross dropped a bombshell when he said Washington would proceed with 25 percent tariffs on Canadian steel and 10 percent tariffs on Canadian aluminum, using a national-security clause in U.S. trade law to justify the move.

The tariffs happened to coincide with the Cansec trade show, in which many of the world’s largest defence companies descend on Ottawa each year to pitch their wares to government.

The defence industry in both countries are easily among some of the world’s largest steel and aluminum consumers; indeed, it was hard to find a spot on the convention floor where a firm wasn’t showing off a tank or ship made of steel or a plane made of aluminum.

“Canada is a secure supplier of steel and aluminum to the U.S. defence industry, putting aluminum in American planes and steel in American tanks,” Trudeau told a news conference in Ottawa, where he and Foreign Affairs Minister Chrystia Freeland outlined retaliatory tariffs of their own. “That Canada could be considered a national-security threat to the United States is inconceivable.”

Industry representatives were reluctant to comment publicly, with several saying it was too early to know for certain how they would be affected by the U.S. tariffs—as well as the retaliatory measures introduced later in the day by the Trudeau government.

The Canadian Association of Defence and Security Industries, the host of the gathering and a group that represents an estimated 800 defence companies operating in Canada, also refused to weigh in. But Public Procurement Minister Carla Qualtrough and Innovation Minister Navdeep Bains, who delivered separate addresses at Cansec, predicted negative impacts for the sector—and increased prices for the government.

“This is (going to have) significant consequences,” Qualtrough said on the sidelines of the trade show after a breakfast address in which she provided an update on several major military procurement projects. ‘And we are working very hard to remind our American partners that we have such an integrated procurement supply chain that it’s very difficult to fathom that there would be a security risk imposed by Canada.”

Industry officials and defence experts have compared the level of integration between the Canadian and American defence industries to the auto sector.

The Trudeau government has planned to invest an extra $62 billion in new military equipment over the next 20 years through its new defence policy, and Qualtrough said that money includes contingency funds for unexpected events.

Those include exchange-rate changes and inflation, as well as higher prices for raw materials such as steel.

But Bains, who spoke during a luncheon event, conceded afterward: “Clearly there are cost implications. Tariffs are not a good thing. We have integrated supply chains. We build things together. We work together.”

The government would be examining the impacts of the tariffs on all sectors, including the defence industry, and the best way to support them, he added. Several company representatives quietly acknowledged their concerns about the impact of a looming trade war involving steel and aluminum, and said they would be watching the issue closely.

“This particular sector of our economy relies really heavily on those products,” said defence analyst David Perry of the Canadian Global Affairs Institute. “So if prices go up on inputs, prices are going to go up on the finished product and that’s not good for anybody.”

Canada, Mexico and Europe had been exempted until June 1 from import duties of 25 percent on steel and 10 percent on aluminum when they were first imposed in March. Barring an 11th-hour reprieve, those exemptions will expire as scheduled.