On Wednesday morning, the second day of the United States-Canada trade war, Mike Garcia, chief executive of Sault Ste. Marie-based Algoma Steel Inc., ordered a halt on all shipments to the U.S.
His concern was that U.S. Commerce Secretary Howard Lutnick on Tuesday afternoon had suggested the 25 per cent tariffs on Canadian imports could be adjusted in a matter of hours.
Garcia had his doubts, but he couldn’t ignore Lutnick’s comments, so he put shipments on pause despite the headaches and frustration it caused. It was but one example of how the tariffs have created a cloud of uncertainty that is changing his business.
“Steel companies are not designed to act in real time based on an interview that somebody just gave on MSNBC,” he said.
Indeed, 2,800 people keep the blast furnace at his company’s steel plant in Sault Ste. Marie operating 24 hours a day, seven days a week. Perhaps once a year, the company will pause operations for maintenance purposes, but at great cost, Garcia said.
In 2018, U.S. President Donald Trump also ordered 25 per cent tariffs on steel until Canada, the U.S. and Mexico signed a new free trade agreement. This time around, the tariffs are broader — affecting almost all Canadian products — and Trump is threatening an additional 25 per cent tariff on steel and aluminum that could come into effect on March 12.
As the importer of record, Algoma is responsible for paying the 25 per cent tariff on the flat-rolled and coiled steel it sends into the U.S. Garcia said his company can only afford to do so because steel prices have risen more than 30 per cent since January, which economists say is an inflationary effect of the tariffs themselves.
If the second layer of tariffs takes effect on March 12, raising the total levy to 50 per cent, he said it would instantly cut off exports to the U.S.
“That almost immediately makes half of our orders underwater,” he said, “and so that would be a very serious threat to the company.”
Steel companies are not designed to act in real time based on an interview that somebody just gave on MSNBC
Mike Garcia
One solution that Garcia and others in the sector are hoping for is for the Canadian federal government to put tariffs against the U.S. and China on foreign steel, which were enacted this past fall, as well as many other countries.
Although there may be opportunities to export more steel to Mexico, many inside the industry still believe that developing the domestic market further for domestic steel holds the most promise.
Garcia said the European market is already served by its own domestic producers, which makes entering that bloc difficult.
Algoma sells its steel to a broad spectrum of companies that use it to make pipes for the oil and gas industry, plumbing, vehicles and so on.
Garcia said his company is not in a position to reinvent which products it makes.
“There’s just way too much uncertainty to undertake a fundamental shift in what this company makes,” he said.
In part, that is because the Algoma steel plant, one of three major ones in Canada, is already in the midst of a transformation that began in 2022. It plans to replace its coal-powered blast furnace with two electric arc furnaces at a cost of more than $800 million.
Much of the attention on this change has focused on the environmental benefits, including an estimated 70 per cent reduction in carbon emissions, but Garcia said the switch will also make the company more efficient.
Electric arc furnaces use a batch process that takes about 45 minutes, allowing the company to ramp up or ramp down much more easily.
The company hopes to fire up the first of its two electric arc furnaces in the next few weeks, he said.
“It won’t allow us to make rebar or long products. We can’t make galvanized steel or stainless steel. It’s not shifting like that,” Garcia said, “but the steel that we do make will be much more cost-competitive and we’ll be able to pause the operations if, say, demand is low.”
From his office window, he looks out at the International Bridge that spans the St. Marys River between Ontario and Michigan, a position that puts him both literally and figuratively on the frontlines of the U.S.-Canada trade war.
This time around, Garcia said his community is taking the trade war more personally as it is pitting neighbours against each other. He said even Canadians who are sympathetic to Trump are having a hard time rationalizing his tariffs.
“Regardless of how they might feel about his overall appeal as a candidate or a disrupter, or all the other things that they thought he might do for the U.S., when it comes to tariffs, they give him a big F,” he said.
The tariff situation has also galvanized the highest levels of government to reduce Canada’s dependence on the U.S. Natural Resources Minister Jonathan Wilkinson said his government is already thinking about how to create more space at ports, remove bottlenecks in transit corridors and remove interprovincial trade barriers.
“Canada will never go back to where we were three months ago, trusting the Americans the way we did, that they will act rationally on trade,” Wilkinson said.
Garcia was circumspect about how this would all play out. His company can continue to swallow the 25 per cent tariffs as long as U.S. steel prices remain high, at least for a few months.
“I don’t know how much of our steel we’ll be selling into the U.S., but I know we’ll be making steel and selling it to customers who really are happy with Algoma steel,” he said.
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