Escalating Canada-U.S. trade tensions and tariffs are beginning to take a toll on B.C. manufacturers, forcing some to consider the long-term realignment of their markets.
One Fraser Valley company, Abbotsford-based manufacturer Phantom Screens, has tied itself so closely with the U.S. market for years that until recently it made little distinction between its U.S. and Canadian customers, considering them both more or less “domestic.”
Phantom Screens CEO Esther de Wolde said the company was built on the assumption that the North American Free Trade Agreement (NAFTA) would be a long-standing trade agreement, years before Trump was ever elected. Now the company has integrated supply and distribution networks helping ensure unimpeded commerce across the U.S.-Canadian border. Roughly 10% of the company’s sales are to Canadian customers and about 85% of its sales are to the U.S. Overseas sales make up the remainder of its revenue.
However, distribution and supply can be challenging. Canada’s sheer size creates obstacles. For instance, aluminum tariffs are raising the cost of importing the commodity from the U.S. While aluminum from Eastern Canada could provide an alternative for the company, the cost of freight and shipping to its manufacturing facility would wipe out any potential benefits from avoiding tariffs.
“If I can buy as local as possible, I will for several reasons,” de Wolde said. “Just one is local sentiment, but I used to think that way about North America and it being local. Now what’s happening down south is starting to fracture that thought process because suddenly it’s like maybe ‘we’re not all in this together’ as NAFTA starts to fall apart and now maybe buying local means just Canada.”
Canada’s response to U.S. president Donald Trump’s tariffs may have hurt Phantom Screens the most, de Wolde said. While Canada has an aluminum extrusion industry, not all producers create the grade of aluminum the company requires. As a result, the Abbotsford manufacturer has had to source aluminum from south of the border. In response to the Trump’s tariffs, the Canadian government put a 10% aluminum and steel surtax in place, raising the company’s cost of production. De Wolde said she would have preferred that the Trudeau government hadn’t responded to the U.S. tariffs.
“I understand it from a political point of view, but here’s where it falls apart for me. Fine, put in a retaliatory surtax, but for heaven’s sakes what are you doing with the now $300 million and growing revenue to the government. They say they’re going to help the industries that are hurt, well I haven’t seen a lick of cash back.”
While de Wolde has yet to see money, the federal government maintains that money raised by the reciprocal tariffs will be funnelled back into the affected industries, according to the federal finance department, Canada has raised $286 million since the tariffs were implement on July 1.
However, John Ries, senior associate dean at the University of British Columbia’s Sauder School of Business, said if the federal government were to refund the retaliatory tariffs dollar for dollar to the Canadian businesses affected, it would render the tariffs useless because there would not be a financial incentive to choose Canadian suppliers over U.S. producers.
Although the government is unable to refund the entire amount of tariffs paid without undermining their policy goals, roughly a month after the retaliatory tariffs were put in place, the Trudeau government announced it would exempt products which are in short supply in the domestic market or other exceptional circumstances that could hurt the economy by imposing hardship on Canadian companies. Programs offering relief from duties and surtaxes on materials used in products exported to the U.S. also continue to be available to Canadian companies.
So far, the federal government has paid out only $11,000 in relief, according to media reports. However, there’s 90-day application processing time and the tariffs were put into place less than three months ago.
De Wolde said with the duty drawback mechanism, Phantom Screens’ products are still competitive in the U.S. market because it can offer them at the same price. But while the program is providing the company with some relief, it has so far benefited mostly its U.S. customer base, as cash flow is tied up while the company waits for the government refund.
Phantom Screens’ customers north of the border aren’t as lucky. Aluminum used in products sold in Canada are not eligible for a duty drawback refund. Phantom Screens has avoided U.S. tariffs on its export sales because the aluminum screens produced fall outside of the category of products affected. However, de Wolde said, the product categorization to determine which goods are affected by the tariffs can be somewhat arbitrary. For example, while the screen sector has escaped the U.S. import tariffs, the same cannot be said for the window-manufacturing industry, which is subject to the import tax.
But the exception for de Wolde’s exports could go away if NAFTA talks deteriorate and the continent is left without a trade deal.
“The ones that are getting hurt are my Canadian customers, eventually,” she said. “I can only keep eating these costs for so long and at some point I have to pass them along. Quite frankly, they’re the ones bearing the burden of the increased cost of the surtax that our government imposed in addition to the rising aluminum cost.”