‘The impacts are massive’: U.S. tariff change pushes Canadian manufacturers to the brink

A worker assembles Can-Am 3-Wheel vehicles at a BRP Inc. manufacturing facility in Valcourt, Que. Photo by Graham Hughes/Bloomberg files

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Canadians manufacturers of products ranging from sport and all-terrain vehicles to tools and moulds to transport trailers could be forced to curtail production after a tariff change imposed by the United States dramatically increased the cost of exporting their products.

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The plight of Quebec-based Sea-Doo maker BRP Inc., which announced this week that its tariff costs would shoot up by more than $500 million this year, drew attention to the little noticed change that went into effect April 6.

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“The size of the cost impact fundamentally changes the profitability profile for BRP and injects a high degree of uncertainty into the outlook,” Cameron Doerksen, an analyst at National Bank Financial, wrote in a note to clients, slashing his target price for BRP stock to $80 from $125. BRP’s shares finished the week down 24 per cent after the company’s announcement, which included suspending its financial guidance for the year.

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The U.S. modification to an earlier tariff on Canadian steel and aluminum means the entire value of products made primarily of those metals are now subject to the levies, rather than just the value of the steel and aluminum parts. While the levy is lower — 25 per cent instead of 50 per cent — it is calculated on the total value of the product, which means the exports cost substantially more.

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The change casts doubt on the viability of hundreds of millions of dollars in revenue for exporters of transportation equipment such as trailers, said Jean-Marc Picard, general Manager of the Canadian Transportation Equipment Association.

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“The impacts are massive. The latest tariffs are basically preventing some large Canadian companies from shipping (and) selling to the U.S. going forward,” he said. “Orders are being cancelled and production is curtailed in some cases and jobs are impacted.”

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Picard said some manufacturers are continuing to ship to U.S. because of contract obligations, but their profits will disappear.

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“The trailer manufacturers are impacted the most and then you have all the suppliers impacted as well,” he said, adding that this pushes the revenue at risk far higher than the $500 million he estimates for the manufacturers in his association. “Axles, suspensions, lights, metals … the list is long.”

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Picard said there doesn’t appear to be an appetite in Ottawa to impose reciprocal tariffs, so U.S.-made trailers continue to ship freely to Canada.   

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“They ship over $1 billion in van trailers per year,” he said. “Not only we are unable to ship to U.S. because the numbers don’t work but the U.S. is also eating our lunch in Canada. This has to stop.”

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Dennis Darby, chief executive of Canadian Manufacturers and Exporters (CME), said hundreds of companies across Canada are affected, and the new tariff regime is hardest on the small and medium-sized businesses in his association, which rely on U.S. buyers and have little recourse. 

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Some companies may qualify for federal government programs set up to support large steel and aluminum companies hit by tariffs, he said, adding that his organization is lobbying to ensure aid remains in place and that the latest escalation is addressed in upcoming Canada-U.S.-Mexico Agreement negotiations.