How Hamilton's steel industry may escape the brunt of tariffs

Analysts familiar with Hamilton's role in the steel industry say it's too early to predict the fallout from Donald Trump's proposed tariffs and say there are a number of factors that could soften the blow.

Pre-existing contracts, the complexity of the steel and auto markets themselves and the two-way flow of steel between the countries are all components that will come into play.

Tariffs of 25 per cent for steel could have an impact on about 10,000 direct steel production jobs in Hamilton, at companies like ArcelorMittal Dofasco and Stelco, and 30,000 other jobs as that could be made more insecure, the local chamber of commerce has estimated.

When do we apply the duties? It's too complicated.- Marvin Ryder, McMaster University

But the outcome may not be as bleak as first envisioned.

"Because of Hamilton being a port capable of shipping to Europe, anything that doesn't go to the U.S. can find a home in Europe," said Chuck Bradford, a steel industry analyst based in New York City.

"The way it looks right now, there are workarounds," Bradford said.

U.S. customers may just pay the higher steel prices

For one, as a large buyer of American steel, Canada has room to retaliate.

Companies with sister mills in the United States, like ArcelorMittal Dofasco, may send pieces there to be stamped and finished as "made-in-America" steel.

And U.S. companies with existing mulit-year contracts with Hamilton steel companies may not be able to get out of those even if the tariffs are instituted. That, or they may not find a competitor with the same product for cheaper.

"What I'm hearing from the customers is that they're just going to pay," Bradford said.

Hamilton's steel industry is "going to be affected by this but in ways that are hard to predict," said Marvin Ryder, business professor at McMaster University.

"ArcelorMittal Dofasco and Stelco sell into the automobile market, but auto makers have said, 'We don't want this.'"

An integrated steel sector

Trump dropped the tariff bombshell with very few specifics on Thursday save for a 25 per cent tariff for steel and 10 per cent for aluminum. The discussion opens a window into an enmeshed, integrated steel industry in North America.

In the automotive sector, existing trade rules allow companies to transport steel parts back and forth across the border many times before the part gets used in a vehicle.

"When do we apply the duties? It's too complicated," Ryder said.

That integration goes back to the auto pact, signed even before the North American Free Trade Agreement, that acknowledged the United States needed Canadian parts to make cars, and vice versa.

"It's been this way for more than 50 years," Ryder said.

"It's like unscrambling the egg," Ryder said – completing the image by suggesting Trump wants to put a tariff on the yolk, but it's nearly impossible to separate the components of the egg once it has been scrambled.

Ryder called Trump's statements "sabre-rattling" and said he's not putting much stock in them until he sees specifics. "Until he actually does something I'm actually trying to tune him out."

On Monday, Trump appeared to use the steel tariff as a bargaining chip to get more of what he wants in the renegotiations of NAFTA, which are in the seventh round.

Monday, Finance Minister Bill Morneau said Canada remains "firm" in its position, and will wait for official news from the Trump administration before considering how to react. But he said both countries stand to lose financially if the proposed tariff is imposed.