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New tariffs spark fears in WNY: 'It makes me a lot less competitive'

To John F. Darby and the 150 employees of Niagara Transformer Corp., new tariffs on imported steel appear to be setting off a double whammy in the making.

First, because the Trump administration last week slapped a tariff on steel imported from north of the border, prices will rise for the specialty steel that the Cheektowaga company can get from only Canada to make its products. And because Canada then retaliated with tariffs on American products, Darby fears that the transformers he sells to one of his biggest customers – Hydro One, a Canadian energy company – will face another levy once they are shipped up north.

"It makes me a lot less competitive," said Darby, Niagara Transformer's president. "Essentially it makes my product 50 percent more expensive than that of a Canadian supplier."

Countless businesses on both sides of the border suddenly find themselves facing similar challenges.

In an effort to revive an American steel industry long past its heyday, President Trump on Thursday imposed a 25 percent tariff on steel imported from Canada, Mexico and the European Union, as well as a 10 percent tariff on imported aluminum. That prompted all three to retaliate, with Canada set to slap tariffs on a range of American products from metals to chocolate to orange juice as of July 1.

Those moves will likely have a disproportionately negative effect in Western New York and southern Ontario, business people and academics said. That's because all sorts of companies there, from small manufacturers to General Motors and Ford, built a binational supply chain over the past 30 years that, thanks to the tariffs, suddenly grew much more pricey last week.

Some labor and business leaders applauded the tariffs, saying they could bring back steel mills and smelters that long lay dormant, but a larger number talked about Trump's trade war just as Veljko Fotak, an assistant professor of finance at the University at Buffalo, did.

"I think this is bad news for upstate New York," Fotak said. "This is self-defeating."

Small companies, automakers hit

There have been major changes in the economy in the 35 years since Bethlehem Steel and its tens of thousands of jobs disappeared from the Lake Erie shoreline, Fotak said.

Those jobs got replaced bit by bit, though not entirely, by companies like Niagara Transformer. Dozens of smaller firms emerged to capitalize first on the 1989 U.S-Canada Free Trade Agreement and then the North American Free Trade Agreement five years later.

WNY labor, businesses see trouble in tariffs, Trump's trade war

Both those deals made the U.S.-Canadian border essentially seamless for most industries, meaning it was easy for them to buy raw materials in one country and make things in the other, or even start the manufacturing process in one country and finish it on the other side of the border.

That goes for even the biggest manufacturing facilities, too. Ford's Hamburg stamping plant, for example, makes auto body parts destined for an assembly plant outside of Toronto, among others.

Neither Ford nor General Motors offered any comment on Trump's trade actions, but some experts think they will hit the auto companies hard.

“Based on 2017 production mix, if the proposed tariff of 25 percent on imported steel translates into a similar magnitude of increase in steel prices, it would impact each firm by roughly $1 billion, representing 12 percent and 7 percent of their 2017 adjusted operating income, respectively,” analysts at Goldman Sachs said in March.

John Darby, right, president of Niagara Transformer, gives a tour and talks about NAFTA with Canada's Minister of Democratic Institutions, Karina Gould in 2017. (John Hickey/News file photo)

Between the small manufacturers and the big auto makers, a vast amount of trade goes both ways over the border between Canada and New York State. Canadian companies sold products worth nearly $21 billion in U.S. dollars in New York State in 2016, making the Empire State Canada's fourth largest trading partner among U.S. states. Meantime, New York sold more goods in Canada –  $15 billion worth – than in any other foreign nation.

Now, many of those goods crossing the border will suddenly be more expensive, starting, of course, with key components of countless products: steel and aluminum.

Expanded tariffs

Trump first announced a round of steel and aluminum tariffs in March. At first he excluded Canada, Mexico and the European Union from those tariffs, but on Thursday he ended that exemption. He did it on the basis of national security, saying America doesn't produce enough of those metals anymore to meet its defense needs.

“We take the view that without a strong economy, you can’t have strong national security,” said Commerce Secretary Wilbur Ross, who announced the moves.

Business leaders on both sides of the U.S. Canadian border said they were perplexed, though, that Trump should target Canada. After all, the U.S. actually exported more steel (4.5 million metric tons) to Canada in 2016 than it imported from Canada (4.3 million metric tons), federal figures show.

"Why would you ever pick a fight with someone when you had a trade surplus with them?" asked Jeff S. Hanley, vice president of sales for energy tubulars at Welded Tube of Canada.

Welded Tube is exactly the kind of company that stands to be hurt the most by tariffs. The company, which makes piping for the energy and gas industry, buys raw materials from both the United States and Canada and manufactures it into piping at a plant in Lackawanna that employs about 100.

Those pipes are then shipped to a facility in Welland, Ont., where they are finished and tested, at which point they're ready to be sold to oil and gas drillers on both sides of the border.

The company had been hoping to add roughly 250 more jobs at the Lackawanna plant someday, as its Canadian facilities are landlocked and the Western New York plant sits on a roomy expanse of land once occupied by the now-defunct Bethlehem Steel plant.

But now, Welded Tube executives worry their products will become so expensive that they may have to cut jobs rather than grow jobs.

"There is a very real possibility that this could have an impact on jobs for us both in the U.S. and Canada," Hanley said.

Part of the production line inside the Welded Tube factory in Lackawanna. (Buffalo News file photo)

A get-tough policy

Proponents of the tariffs stress, though, that the focus must remain on the bigger picture.

"Unfair, predatory trade practices from the European Union, Canada and other countries have really destroyed large parts of the American steel and aluminum manufacturing industries," said Craig Speers, a member of the executive board of the Buffalo AFL-CIO.

Asked to outline Canada's predatory practices, Speers noted that with its national health care system, the Canadian government frees its metals industries from a heavy cost burden that their American competitors have to bear. In addition, Speers noted that Canada hasn't pulled its weight on defense spending in the NATO alliance, thereby leaving America with a heavier burden.

Speers said the Trump administration is only right to extend the metals tariffs to Canada as well as Mexico and the EU – especially given that the tariffs placed on other countries in March already seem to be succeeding in some ways.

After Trump announced his first round of tariffs, United States Steel Corp. said it would bring a blast furnace back online at a plant in Granite City, Ill., and recall 500 workers. Republic Steel said it was preparing to reopen a plant in Lorain, Ohio, adding 1,000 jobs. And Century Aluminum said it would reopen a smelter in Kentucky and double the workforce there, to 600.

“There is evidence the (tariffs) strategy is working as the Trump administration moves ahead with its steel and aluminum trade actions," said Scott Paul, president of the Alliance for American Manufacturing, which has long backed a get-tough trade policy. "American smelters and steel mills are reopening, which means more jobs and added capacity."

Other supporters of Trump's move hint that it may be aimed at a bigger goal, such as pressuring Canada and Mexico into agreeing to the tougher terms the U.S. is demanding in the renegotiation of NAFTA.

“President Trump, relying on his business background, will use all tools at his disposal to put America first," said Rep. Chris Collins, a Clarence Republican and a strong Trump backer. "That is exactly what the American people elected him to do. For far too long, the United States has been taken advantage of by other countries, and the president’s negotiating tactics will ultimately lead to better deals, increasing economic growth and more jobs here at home.”

A broad impact

Collins' congressional colleague, Rep. Brian Higgins, D-Buffalo, sees things entirely differently.

“The actions by the administration to apply new tariffs on our strongest allies – including Canada and Europe – is bizarre," said Higgins. "While these tariffs – called Section 232 actions – are based on protecting national security interests, this decision to not exempt our strategic allies calls that into question. This continues a chaotic, disruptive approach to administering our trade laws."

Higgins opposes tariffs on Canadian newsprint

The issue has united labor and business leaders who don't usually see eye to eye.

The United Steelworkers union, for example, issued a statement eviscerating the Trump administration's action.

"The decision not to exempt Canada ignores the fact that Canada’s steel and aluminum exports to the United States are fairly traded and that Canada has shown its willingness to strengthen its laws as well as its cooperation with the United States to fight unfair trade," the Steelworkers statement said.

Meantime, all sorts of companies in Western New York are bracing for the impact not only of the U.S. tariffs on Canadian metals, but also for Canada's promised retaliation. The tariffs unveiled by Prime Minister Justin Trudeau Thursday would affect a host of products made in New York, ranging from prepared meals to maple syrup and yogurt.

"I think there's general unrest regarding this, regardless of the industry you're in," said Craig W. Turner, president of  World Trade Center Buffalo Niagara. "Nothing is really safe."

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