O, Canada: Trade Faceoff With US Snarls Automobile, Steel Markets

In 1999’s South Park: Bigger, Longer & Uncut, the United States declares war on Canada over an obscenity-laced cartoon deemed a threat to children south of the border. In 1995’s Canadian Bacon, a US administration launches a Cold War on Canada that includes a propaganda campaign blasting Canadians’ love of mayonnaise. Truth is stranger than fiction.

Three days after trade talks between the two countries collapsed, President Donald Trump declared in a Monday social media post, “We don’t need Canada, they need us!” Doug Ford, the leader of Canada’s largest province, responded: “He can kiss my a—.” Both sides said they intend to ratchet up a trade clash that Canadian Prime Minister Carney said has put the two nations “at war.” While officials hunker down for a fight, investors are hesitant to put much stock in near-term tailwinds for potential beneficiaries.

I’m Steel Standing

In the middle of last week, things were practically chummy. Trump paused tariffs set to take effect on Wednesday, telling reporters the US and Canada reached a trade deal in which both sides made concessions. Then, late on Friday, Carney directed his negotiators to stop bargaining and leave the US immediately, alleging the Trump administration made unacceptable last-minute demands. 

Without a pact in hand, Trump on Saturday placed 50% tariffs on roughly $20 billion worth of Canadian imports including wine, cement and hockey equipment. Carney vowed “dollar-for-dollar” retaliation. On Monday, Trump escalated. Starting in 2027, he said, car and truck imports from Canada will face a 50% tariff, up from 25%. Auto parts will face a new 50% tariff. Of particular note, steel imports face a sustained 50% levy. Last week, when a deal seemed almost certain, shares in US producers Nucor, Cleveland-Cliffs, and Steel Dynamics fell, as it looked like they would soon face more Canadian competition. Even though that prospect now seems farther away than Yellowknife, investors are playing it cautious:

• Nucor, Cleveland-Cliffs, and Steel Dynamics all rose multiple percentage points in early trading on Monday, but eventually gave up most of the gains. Trump’s tariffs have pushed supply onto international markets, where steel is now cheaper, while American buyers are stuck paying more.
• According to SteelBenchmarker, US hot-rolled band prices reached $1,264 per metric ton on August 12, the highest since 2022. That compares with $825 in Western Europe and a global benchmark of $500, continuing a run of record price spreads.

Three Companies: Detroit’s Big Three automakers had a tougher Monday: Shares in Ford fell 3.3%, General Motors 1% and Stellantis 3.5%. At present, the US industry has a trade surplus with Canada, which bought $30.4 billion in vehicles from the US in the first half of the year, while $24.5 billion in Canadian-made vehicles went the other way. If Carney is serious about “dollar-for-dollar” retaliation, that could be one target.