Thank you.
Good morning, Mr. Chair and honourable members.
Thank you for inviting me to speak on behalf of Canada's 90,000 manufacturers and exporters and our association's 2,500 direct members to talk about U.S. tariffs on Canadian steel and aluminum.
I want to thank all members of the committee for organizing and hosting these critical sessions under challenging times. Manufacturing is the largest business sector in the country, directly accounting for 11% of GDP, 67% of exports, and 1.7 million employees in high-wage and high-skilled jobs in nearly every community across the country.
Through NAFTA our industry has spent the last quarter-century building a common North American market. Manufacturing is deeply integrated across the continent and relies on complex supply chains that span Canada, the United States, and Mexico. Disruptions of any of these three countries risk upsetting the balance of the North American manufacturing ecosystem, so I will be blunt: we are very, very worried today. The current tariffs on steel and aluminum, the proposed future tariffs on auto, and the spectre of a global trade war represent serious threats to Canadian manufacturing and to the entire Canadian economy. CME has decided to respond to the situation, as we always have, by engaging constructively with government, providing practical solutions, and relaying directly to you the thoughts of manufacturers from across the country.
We support the government's retaliatory tariffs. They are a just response to the frankly absurd and insulting premise with which the U.S. administration levied steel and aluminum tariffs on Canada. I would say that manufacturers support the counter-tariffs too and they understand the political necessity to so do. However, they are also very concerned that Canadian counter-tariffs will have a major impact on their business especially if the tariff fight is prolonged or intensified. Pain will be felt—of that we have no doubt—so the question becomes how we alleviate that pain.
This is what I would like to talk to you about today.
CME responded to the government's consultation on June 15 after canvassing its members for over two weeks. We had a very strong response rate, which indicates to us that the level of concerns is very strong and very high. We'd like to provide the committee with our five key recommendations that came out of that exercise.
First, we should focus again on NAFTA renegotiation and on concluding the deal. It is of paramount importance that the government redouble its efforts on NAFTA and try to conclude a deal as soon as possible. NAFTA instability is a true threat to manufacturing and to the entire Canadian economy while the tariff fights are a distraction and are designed to make us take our eye off the ball. The government is right to say that tariffs and NAFTA negotiations are two separate issues, because they are, but the reality is that the U.S. administration clearly doesn't care and is using it to turn up the heat on Canada and NAFTA via tariffs. The government should not fall into this trap and get bogged down in tariff fights. Concluding NAFTA as soon as possible should be our focus.
I would also like to add that CME's original submission to the NAFTA negotiations detailed principles that we still believe NAFTA negotiators should follow to ensure support for an integrated manufacturing sector. These include, first, to do no harm to the economy and integrated manufacturing; second, to modernize the deal to strengthen manufacturing and to make it more competitive globally; third, to expand the deal and to cover excluded areas; and, fourth, to co-operate with the United States and Mexico on our trade with third countries.
The second area we offer to Canadian negotiators is to exclude manufacturing imports and retaliatory tariffs. The current proposed retaliatory list includes a range of manufacturing inputs that are not readily available from Canadian sources. Therefore, application of the tariffs would do double injury to Canadian manufacturers through the cost of the U.S. tariffs on inputs as well as the Canadian-levied counter-tariffs. Therefore, government retaliatory measures need to exclude, to the greatest extent possible, manufacturing inputs to avoid disastrous repercussions to the industry and minimize disruptions to manufacturers' integrated supply chains.
Number three was to introduce safeguards to protect the domestic market against third-country dumping. The U.S. tariffs not only pose a significant economic threat to Canadian steel and aluminum producers, and to manufacturers more generally, but could also distort global trade flows of these primary products. Because of Canada's proximity to the U.S. and given the size of our domestic market, steel originally intended for the U.S. may be diverted into Canada and dumped by exporters. To protect against this, the Canadian government should immediately implement existing safeguard protections to ensure that Canada does not become a dumping ground for steel and aluminum from other countries.
Number four is to develop an emergency relief fund for distressed industries. The federal government should make available immediately financial compensation packages for Canadian businesses negatively impacted by tariffs. This could include direct financial support, holidays from payroll and other taxes, and support for employee training. These funds should be structured in a manner that is trade-compliant to ensure that Canadian products continue to be exported to world markets.
Number five is to reinvest tariff revenue into investment support programs more generally. If the trade dispute with the U.S. continues for any length of time, businesses will continue to avoid investing in Canada, as they have been. Canada should consider leveraging the tariffs collected to support business investment. This could be through direct investment supports that could be matched with private sector money—to de-risk technology adoption, for example—or it could be done through the tax code to spur such investments as updating Canada's accelerated cost of capital allowance rules to match the recent U.S. changes, or, more generally, lowering corporate tax rates.
In summary, we must re-engage in NAFTA negotiations to secure a deal as soon as possible. An imperfect NAFTA is far superior to no NAFTA and a trade war with our most important customer. If retaliation is pursued, Canada must target tariffs carefully and limit economic impact on the integrated economy. Further, we believe safeguards are necessary to limit steel and aluminum dumping in the Canadian market. Finally, we believe the government must act to support potentially distressed companies and establish broader and more substantial supports to spur investment and competitiveness in uncertain times.
We hope our comments will provide helpful guidance to the government while you make your final determinations on possible retaliation. While we understand the political need to retaliate, we believe it must be done with the utmost caution to not inflict additional harm in Canada on its most important trade-exposed sector—manufacturing.
Thank you. I look forward to the discussion.