Proposed 25% tariffs on steel and aluminum set to come into effect next month will increase the costs of agricultural machinery and replacement parts, a farm insurance expert tells Canadian Underwriter.
On Monday, U.S. President Donald Trump announced the 25% tariff on all steel and aluminum imports, effective Mar. 12. Canada and numerous other countries had previously received exemptions from these tariffs.
The tariffs will affect the cost of steel and aluminum, increasing replacement costs for new and used equipment “as that market will see higher volatility as well,” says Ken Worsley, chief operating officer at Nova Mutual Insurance Company. Replacement parts will also cost more for repairs and maintenance.
For example, a five-year replacement cost on a tractor may be $400,000, but now the equipment is worth $500,000. “Who’s coming up with the $100,000?” Worsley asks. “We’re only paying the $400,000, so somebody’s got to come up with the hundred thousand.”
While Canada has a few manufacturers of agricultural machinery, most equipment comes from the U.S., Asia or Europe, Worsley explains.
The tariffs could even impact supply and demand, or construction projects.
“I think farmers may put off buying [or] leasing new equipment and perhaps rely on the used market as well, driving up costs due to supply and demand,” he says. “If steel and aluminum prices increase in Canada, it will affect all types of ag machinery and buildings, and further projects could be put off until the tariff issue is resolved.”
Trade war worries
A North American trade war could also drag on, with an escalation in retaliatory tariffs. And if Trump follows through with across-the-board tariffs on all Canadian goods on Mar. 4 (Canada and Mexico received a 30-day reprieve last week), farmers will face more cost pressures.
“There will be different rounds of tariffs,” Worsley says. “Guaranteed it’s going to hit those things that farmers buy, whether it’s machinery, supplements, feed equipment…robots, stuff like that.”
Worsley says the industry faces a ‘perfect storm’ — tariffs, changes to building codes, capacity issues (stemming from historical loss ratios), and supply management challenges.
“I’m still hopeful this is all just a…negotiation tactic to do the USMCA a year early,” Worsley says, referring to the United States-Mexico-Canada Agreement that went into effect in 2020 and replaced the North America Free Trade Agreement. “Even if that’s what it is, that is still going to have an impact on supply management and then revenue for our farmers to…do the maintenance.”
With less revenue due to supply management costs, farmers will have less revenue for maintenance to reduce catastrophic fires, as an example. “Less money for maintenance means more losses. We’re not going to be able to keep the status quo in supply management,” Worsley says.
If the steel and aluminum tariffs take effect, they are also expected to affect the automotive industry by increasing production costs and vehicle prices, disrupting supply chains and potentially resulting in job losses. Economists believe these tariffs will lead to higher prices for consumers in both Canada and the U.S.
“This will be as bad for U.S. farmers as it is for Canadian farmers in terms of increased costs,” Worsley adds.
Feature image by iStock.com/MicroStockHub
