The Canadian government is likely to take protectionary measures to impose a combination of tariffs and quotas on steel imports to bar the potential flood of diverted steel imports from the US. China is likely to be one of the main targeted countries. Meanwhile, Canadian counter-tariffs on the US steel, aluminium and other products will go into effect on 1st July.
Commodity Inside view:
Canada along with Mexico and the EU was previously temporarily exempted from the US 25% tariff on steel, imposed in March this year. However, the tariffs came into force by 1st June. This is also one of the reasons that are coercing Canada to redefine its trade policies.
In retaliation, Canada is now imposing tariffs on $12.8 billion worth of US exports including steel and aluminium. Canada is also challenging the US government tariffs on steel and aluminium under NAFTA’s Chapter 20 and the WTO’s dispute settlement process.
The spillover effect of Section 232 is forcing other countries to take safeguard measures to protect their markets from the cheap inflow of imported steel from countries where there is overcapacity, particularly China. The EU launched safeguard investigations in May to ward off the redirected steel imports to Europe after the implementation of 25% US tariffs.
In the wake of 25% steel tariffs on imports to the US, Canadian steel companies have been worried about the Chinese and Southeast Asian steel materials that could enter the country and harm its domestic market. The new safeguard measures would possibly be the combination of quotas and tariffs aimed at certain countries to limit their steel import. It is expected that these tariffs would apply in a case where steel imports cross the threshold set for specific countries, or there is clear evidence of dumping.
Commodity Inside’s North American Steelmaking Capacity Databook 2018, shows that there are 22 steelmakers in Canada with a combined semi-finished steel capacity of 18.5 million tonnes. However, Canada is a net importer of steel and heavily dependent on the US. It had around 850k tonnes steel deficit with the US in 2017. Canadian steel imports in 2017 were about $9 billion in value terms, where the US accounted for 55% while the other leading sources included China, South Korea, Brazil and Turkey. We expect that the US steel exporters will bear the brunt, followed by China.
Canadian domestic steel production is less than its demand, whereas construction companies and steel fabricators depend on imported steel. It is likely that Canadian safeguards measures would potentially increase steel prices and impact the end-use sectors such as construction and automotive. The protectionary measures are also going to increase capacity utilisation of domestic producers and improve their margins as prices rise.
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