It’s unclear if the new steel tariff proposed by U.S. President Donald Trump could be bad news for Canadian producers when it comes time to buy new farm equipment.
If the tariffs are imposed, U.S. manufacturing companies would pay 25 per cent more for imported steel and 10 per cent more for imported aluminum, unless the exporting country has an exemption.
But it’s not clear if the new duties will drive up equipment prices in a noticeable way for Canadian producers looking to buy new machinery.
“I think it’s too soon to really make a judgment call on that,” said Kevin Bender, chair of the Alberta Wheat Commission.
Alberta Barley chair Jason Lenz has a similar view, saying the possibility of the new tariffs causing price increases is cause for some concern, but noted it’s hard to predict how the situation will play out.
“You never know what’s going to happen south of the border these days,” Lenz said.
Since Trump’s initial announcement of his proposed tariffs, Canada and Mexico received an exemption while North American Free Trade Agreement talks continue. However, the exemption is only “for now,” U.S. officials said, with Trump tweeting, “tariffs on steel and aluminum will only come off if new and fair NAFTA agreement is signed.” (Australia has also been granted an exemption and other governments were scrambling to get exemptions from the levies, which were scheduled to take effect March 23.)
Many of the major farming equipment manufacturers are U.S. based, like John Deere or Case New Holland. The possible impact on American manufacturers’ bottom lines has the U.S.-based Association of Equipment Manufacturers sounding alarms.
A 25 per cent steel tariff could have negative ramifications not only for the companies, said association president Dennis Slater, but also employees and producers, as production costs go up, profit margins decrease, and sales possibly drop.
“I’ve seen a couple already say they’ll put a… steel fee on that, on top of their costs for now,” Slater said. “I don’t think they’re going to be able to absorb all the cost of that.”
Most U.S. equipment manufacturers work with at least some imported steel, he said.
“I’ve only met one manufacturer, and a very small one at that, that sourced all its steel in the U.S.,” he said.
However, how much equipment price tags may go up is unknown.
“It depends on the individual manufacturer,” Slater said.
His organization estimates that steel accounts for about 10 per cent of equipment manufacturers’ direct costs. A 25 per cent jump in that cost translates into a 2.5 per cent increase in the total cost of manufacturing a tractor or combine. That may not seem like a lot but it would be a significant jump given the high price of some agriculture equipment, Slater said.
(In its most recent farm input cost estimates, Alberta Agriculture puts the price tag for a new four-wheel-drive, 325- to 375-horsepower tractor at just over $384,000. A 2.5 per cent increase in that price equals $9,600.)
But the bigger impact on the cost of equipment at the moment is the slide in the Canadian dollar, said Bender. A low loonie helps producers on export sales (which are priced in U.S. dollars) but greatly increases the price of imported machinery.
“That’s a tangible change that we’ve witnessed in the past,” Bender said.
The lower dollar combined with a drop in grain and oilseed prices prompted Prairie farmers to scale back purchases of tractors, combines, and other new equipment in the last few years. However, the country’s largest dealer of Case IH farm equipment recently expressed the hope that was changing.
“We have begun to see signs that Western Canada’s agriculture equipment profile is reverting to a more typical composition, with customer demand for new equipment beginning to pick up,” Rocky Mountain Equipment said in stock market regulatory filings earlier this month.
Farmers have faced increasing equipment costs over the last several years, said Lenz, adding that if manufacturers’ costs go up due to the new steel levies, they will be passed on to farmers.
“If those manufacturers end up having to pay that, we all know who will have to pay,” he said.
The Association of Equipment Manufacturers is part of a wider effort by the U.S. manufacturing industry to persuade the Trump administration to dump the idea of steel and aluminum tariffs altogether. Meanwhile, the uncertainty of what is happening is already affecting steel prices, Slater said.
“We’ve heard there’s been a run-up in anticipation of the tariff, that prices are already on their way up,” he said in a mid-March interview. “One manufacturer told us in the farm industry just this week, on hearing the announcement told us that they in the last six months have already… faced 30 per cent in increases.”
The uncertainty over the future of NAFTA and what Trump might do next also has the Canadian agricultural manufacturing industry on edge.
“The lack of clarity around NAFTA is the big issue at the moment. It’s got a lot of people, I would say, on pause in terms of investment decisions,” said Nigel Jones, CEO of Seed Hawk and a director of the Agricultural Manufacturers of Canada.
Canadian makers of agricultural implements have annual exports of around $2 billion, with the U.S., Australia and Russia being the biggest customers. While most agricultural equipment is exported tariff free, Trump’s steel tariffs are concerning, he said.
“(The tariffs) could have an effect on supply, the supply/demand ratio, that comes into play. If supply tightens up then it could be a big impact,” said Jones, whose company manufactures air seeders and drills in Langbank, Sask.
The uncertainty over access, tariffs, and potential cost increases are bad for everyone — equipment makers and farmers alike, added Leah Olson, president of the Agricultural Manufacturers of Canada.
“There’s just so much trade that flows between Canada and the U.S. that to put up barriers at this point, I don’t understand how that can be positive for both sides,” she said.
“I think that there’s enough innovation, particularly on the Canadian side when it comes to farm equipment that U.S. farmers will want to see Canadian farm implements continue to be available to them.” — With files from CNS Canada