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Workers at the Oakville Ford plant load cars onto a truck for shipment to unknown destinations on Oct. 13, 2017.Glenn Lowson/Globe and Mail

Small business owners across Canada are crossing their fingers that a potential resolution to the North American free-trade agreement will also include the elimination of tariffs on steel and aluminum that have been driving up costs on both sides of the border, causing some companies to lose business.

On May 31, U.S. President Donald Trump announced tariffs of 25 per cent on imports of certain steel products from Canada and 10 per cent on aluminum products. In response to the new tariffs, the Canadian government announced its own set of surtaxes on imports of certain steel, aluminum and other products from the U.S. Ottawa said the countermeasures would remain in place until the U.S. withdraws its tariffs on Canadian steel and aluminum products, and these negotiations are separate from NAFTA. While the federal government is offering some relief measures for Canadian manufacturers affected, not all companies qualify.

As NAFTA talks continue between the U.S. and Canada, some Canadian companies buying U.S. steel and aluminum products are being hit twice by tariffs imposed on both sides of the border – once for the higher cost of the raw materials coming from Canada to the U.S. and a second time when the finished product goes back into Canada.

“The series of unfortunate events is, if you happen to have a product on that list [of Canadian countermeasures], yes, you get hit twice … when it crosses the border back into Canada,” says Dennis Darby, president and CEO of the Canadian Manufacturers & Exporters trade association. He says manufacturers in a broad range of sectors are being affected, from transportation to medical devices.

For a lot of companies caught in this predicament, there’s not an option of getting the products from another supplier in Canada or outside the U.S. “The irony of this whole back and forth is because Canada and the U.S. economies are so integrated,” says Mr. Darby. “We’re not self-sufficient in practically any category … Companies over the last quarter century have rationalized production north and south so there are some things that we make in Canada and some that we make in the U.S. It’s very difficult and quite frustrating for the industry.”

An example is Oakville, Ont.-based medical device manufacturer Glenwood Laboratories Canada, which has seen the cost of its aluminum oxygen cylinders purchased from the U.S. rise by about 25 per cent due to tariffs imposed on both sides of the border. Its U.S. supplier has increased its prices as a result of the new U.S. tariffs on raw materials crossing the border into the U.S. from Canada. Then, the oxygen cylinder is hit with Canada’s countervailing tariffs as it crosses back into Canada.

Glenwood president Henry Benzoni says the company has no choice but to purchase the product from the U.S., since it’s a specialty item that’s not made in Canada. He says Glenwood isn’t eligible for a rebate of the surtax, which only applies to companies in very specific circumstances, for example, where they are contractually required to use U.S. materials.

As a result, the company has had to raise prices of its products by about 8 per cent, to help offset some of the increase. “We try wherever possible to absorb regular market changes but these new tariffs have left us with little option. We trust that you understand,” Mr. Benzoni wrote in a letter to customers explaining the new, higher price list.

In an interview, Mr. Benzoni said some customers weren’t pleased, which he understands. “It’s not just us, anyone who provides these cylinders is in the same position,” he says. “We’ve accepted it, but we also hope the tariffs will go away" if Canada can come to a trade agreement with the U.S.

Edmonton-based Argus Machine, which manufactures and sells products such as specialized valves and switches for the industrial sector, is also being hit by higher costs from tariffs imposed on both sides of the border.

President Kris Mauthe says his company is paying about 10 to 20 per cent more for materials purchased from the U.S. that have been impacted by Canada’s counter-tariff measures. As a result, Argus Machine has been forced to increase its prices by about 3 to 5 per cent. He’s hoping to recover some of the countertariff money paid back from the federal government program, but says it’s a lengthy administrative process that reduces his firm’s productivity.

“There’s only so much you can absorb,” Mr. Mauthe says of the extra costs. “We are unfortunately passing them along and, in some cases, we are losing business because of it.”

Some customers are accepting of the price increase, but Mr. Mauthe worries it could hurt business longer term as he starts filling orders for next year. “[Customers] are already comparing us to other lower-cost jurisdictions. That additional 3 to 5 per cent: Some will accept it. Some will not.”

Meantime, he too hopes the tariffs will be soon dropped if a NAFTA agreement can be reached. Still, he worries some of the damage the new tariffs have done to Canada’s overall market competitiveness can’t be easily undone.

Steel and aluminum makers in Canada and Mexico are calling on NAFTA negotiators to get U.S.-imposed tariffs on steel and aluminum dropped in a new deal. Mexico didn’t win this provision in its bilateral agreement made recently with the U.S.

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