Following up on last week's analysis of general export patterns since the advent of Trump 2.0, this edition of The Twenty-Four examines Canada’s export performance in sectors facing specific tariff headwinds from the U.S.

Since March, the U.S. has levied tariffs on a broad spectrum of Canadian goods, including autos, steel, aluminum, lumber, and copper. We aim to identify which of these sectors have been most affected and which have managed to diversify their international buyer base over the first seven months of this year.

We’ll dive into broader tariff impacts, and the macroeconomic picture for the national and Alberta economies, in our latest Economic Outlook out later this week.

Steel and aluminum: 25% tariffs since March and 50% from June

Canada's steel and aluminum industries have faced significant headwinds following the imposition of new tariffs by the United States. In March, the U.S. levied a 25% tariff on Canadian steel and aluminum imports, a figure that escalated to 50% in June. 

Year-to-date (YTD), international exports of steel and aluminum products were down 14% compared to the first seven months of 2024. We don't have specific price deflators for aluminum and steel, but broader primary metal manufacturing price indices suggest that the majority of this decline can be attributed to a drop in the volume of exports rather than price fluctuations.

The U.S. is a crucial market for Canadian iron, steel, and aluminum, receiving approximately 88% of Canada's exports in these sectors. While initial surges in exports to the U.S. occurred in the first quarter due to buyers anticipating tariffs, this trend quickly reversed. As of July, the value of U.S. exports declined 15% YTD. Although there have been recent increases in exports to other countries like Italy and Thailand, these gains to non-U.S. destinations have not been sufficient to compensate for the significant decrease in sales to the U.S.

Autos: 25% tariffs on exports since April

Since April, the auto sector has been subject to a 25% tariff on the non-U.S. content of Canadian-assembled vehicles. In May, Canadian auto parts not compliant under the Canada-U.S.-Mexico Agreement (CUSMA) were also subject to a 25% tariff. This has led to mixed results, largely due to significant front-loading impacts: revenues from motor vehicle and parts exports to the U.S. initially rose by 5.9% in the first quarter, then declined in the second.

Total auto sector exports were down 1.1% YTD. This decline was primarily driven by a 2.5% decrease in sales to the U.S., which accounts for 90% of Canada's international auto sales. Despite this, exports of these products to other markets, especially Mexico and China, saw a significant 14.2% increase, mostly due to higher volumes rather than higher prices.

Softwood lumber: 15% anti-dumping duties

Canada's softwood lumber industry has long been a focal point of trade disputes with the United States, marked by recurring anti-dumping charges. These charges, aimed at counteracting what the U.S. deems unfair pricing practices, have significantly impacted Canadian lumber exports. By the end of July, the anti-dumping duties on Canadian softwood lumber surged from 14.5% to 20.6%.

Despite these headwinds, overall wood product export values held largely flat compared to the first seven months of last year. While exports specifically to the U.S. market dipped 1.2%, exports to all other countries saw a robust 6% increase, driven by sharp increases in the Philippines, the U.K., and China. 

Contrary to autos, prices have managed to cushion revenues so far in this sector as estimated volumes of forestry products fell 5% YTD.

Bottom line 

While most of Canada’s exports remain shielded from tariffs under the CUSMA, the steel, aluminum, auto and wood products are feeling the biggest impact; exports to the U.S. in each of these industries have decreased this year. Although sales to other countries have increased, these gains have not offset the losses from the U.S., which remains Canada's primary international market.

In August, manufacturing employment declined by over 50,000 compared to February's pre-tariff levels, revealing the increasing impact of tariffs on the labour market. This follows June's overall manufacturing sector GDP reaching its lowest point since the pandemic with sharp pullbacks experienced in the output of each of the sectors mentioned above.

What’s to come?

The tariff war escalated further in August with a 50% tariff on some copper products, along with additional tariffs on steel and aluminum categories, indicating more challenges ahead. In addition, the anti-dumping duties on Canadian softwood lumber were hiked to 35% in August. However, recent sectoral tariff support packages announced by the federal government as well as initiatives such as “Build Canada” are anticipated to improve conditions going forward. In addition, ongoing legal challenges against U.S. tariffs on Canada could materially impact these sectors in the coming months.

These competing forces continue to create a complex and uncertain environment. How does this impact the bigger economic picture for Alberta and the rest of Canada? We connect the dots and provide our comprehensive forecast in our Economic Outlook, coming soon! 

Answer to the previous trivia question: The unemployment rate in Alberta for men aged 15-24 was 19.4% in August compared to 14.3% for women aged 15-24.

Today’s trivia question: Which Calgary TV station began broadcasting on this day in 1960?