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A worker assembles Can-Am 3-Wheel vehicles at a BRP Inc. manufacturing facility in Valcourt, Que. (Credit: Graham Hughes\/Bloomberg files) <\/p>\n A worker assembles Can-Am 3-Wheel vehicles at a BRP Inc. manufacturing facility in Valcourt, Que. (Credit: Graham Hughes\/Bloomberg files) <\/p>\n
Canadians manufacturers<\/a> of products ranging from sport and all-terrain vehicles to tools and moulds to\u00a0transport trailers could be forced to curtail production after a tariff<\/a> change imposed by the United States<\/a> dramatically increased the cost of exporting their products.<\/p>\n The plight of Quebec-based Sea-Doo maker BRP Inc.<\/a>, 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.<\/p>\n \u201cThe size of the cost impact fundamentally changes the profitability profile for BRP and injects a high degree of uncertainty into the outlook,\u201d 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\u2019s shares finished the week down 24 per cent after the company\u2019s announcement, which\u00a0included suspending\u00a0its financial guidance for the year.<\/p>\n The U.S. modification to an earlier tariff on Canadian steel<\/a> and aluminum<\/a> 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 \u2014 25 per cent instead of 50 per cent \u2014 it is calculated on the total value of the product, which means the exports cost substantially more.<\/p>\n 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.<\/p>\n \u201cThe impacts are massive. The latest tariffs are basically preventing some large Canadian companies from shipping (and) selling to the U.S. going forward,\u201d he said. \u201cOrders are being cancelled and production is curtailed in some cases and jobs are impacted.\u201d<\/p>\n Picard said some manufacturers are continuing to ship to U.S. because of contract obligations, but their profits will disappear.<\/p>\n \u201cThe trailer manufacturers are impacted the most and then you have all the suppliers impacted as well,\u201d he said, adding that this pushes the revenue at risk far higher than the $500 million he estimates for the manufacturers in his association. \u201cAxles, suspensions, lights, metals \u2026 the list is long.\u201d<\/p>\n Picard said there doesn\u2019t appear to be an appetite in Ottawa to impose reciprocal tariffs, so U.S.-made trailers continue to ship freely to Canada. \u00a0\u00a0<\/p>\n \u201cThey ship over $1 billion in van trailers per year,\u201d he said. \u201cNot only we are unable to ship to U.S. because the numbers don\u2019t work but the U.S. is also eating our lunch in Canada. This has to stop.\u201d<\/p>\n Story Continues <\/p>\n 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\u00a0rely on U.S. buyers and have little recourse.\u00a0<\/p>\n 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<\/a> negotiations.<\/p>\n If that doesn\u2019t happen, manufacturers may have no choice but to relocate production to the U.S., he said.<\/p>\n \u201cWe polled our members even six months ago, and somewhere in the range of 40 per cent were at least looking at what it would take to \u2026 move some production to the U.S.,\u201d he said. \u201cI think that if this persists, if we aren\u2019t able to provide some clarity or hope to Canadian companies through the CUSMA negotiation \u2026 you will, over time, see companies pivoting their production where they can to the U.S.\u201d<\/p>\n Darby said many affected companies, which stretch from British Columbia to Nova Scotia, were reluctant to go public with their concerns, at least for now. But BRP is a member and the calls his organization has received from hundreds of other businesses suggests the latest tariff jolt will eat into revenue and profits, hamper investment and hurt productivity.<\/p>\n \u201cWhat\u2019s happened is people are sitting on their hands because of the uncertainty, and that\u2019s what continues right now. That\u2019s the worst of all worlds,\u201d he said.<\/p>\n William Pellerin, a partner in the international trade group at McMillan LLP, said companies that are affected by the latest change \u2014 including tool and mould makers and manufacturers of tractor trailers and ATVs \u2014 cannot seek protection via CUSMA exemptions because they don\u2019t apply to\u00a0steel derivative tariffs imposed by the United States.<\/p>\n \u201cOther than taking on a ton more debt, there is not much these companies can do, or that government can do, other than attempt to negotiate away these U.S. tariffs,\u201d he said.<\/p>\n \u201cAbsent some negotiated outcome, the result is likely to be that many of these companies will relocate operations to the United States or retrench operations and lay off workers.\u201d<\/p>\n Pellerin said the latest change marks a significant escalation in the trade war, and is extremely painful for Canadian manufacturers.<\/p>\n \u201cWe have seen Canadian manufacturers make the difficult decision to cease all\u00a0exports to the United States \u2013 sales are drying up,\u201d he said.<\/p>\n