Maine will escape the first round of a trade war with Canada with a glancing blow.

Roughly $67 million worth of Maine products will be exposed to retaliatory Canadian tariffs set to go into effect July 1, in response to import taxes on steel and aluminum from the Trump administration.

That accounts for less than 6 percent of Maine’s total export value to Canada in 2017 and places Maine among the states least affected by the bilateral trade war.

Even though Canada’s countermeasures cover a spectrum of Maine-made goods, such as boats, salad dressing, greeting cards, prepared chicken and maple syrup, they spare much more critical commodities such as lobster and lumber used by industries that straddle the Maine-Canada border.

And that intimate economic relationship between Maine and its northern neighbor could insulate the state from a deeper trade dispute, according to experts.

“I would say we largely got off easy,” said Wade Merritt, director of the Maine International Trade Center. “This to me looks like we are sort of collateral damage to measures taken against other parts of the country.”

That’s cold comfort for casualties like Stonewall Kitchen. The York-based boutique food company worked overtime through June to produce and ship as much product as it could to Canada before the tariffs hit.

In the big picture, Maine’s top Canadian imports and exports – lumber, lobsters, pulp and paper products, frozen fish and airplane parts – are unaffected, at least in this round of a trade dispute the Trump administration initiated by imposing tariffs on America’s strongest ally and biggest trading partner.

Maine’s top Canadian imports and exports, including lumber and lobster, are unaffected by the tit-for-tat trade dispute with the U.S. – at least in this round.

Maine exported $1.2 billion worth of goods to Canada last year, almost half the state’s entire export value. The province of New Brunswick is Maine’s largest trading partner, accounting for 28 percent of exports last year, around $736.6 million.

“There is so much integration between our natural resource-based industries,” Merritt said. “It means you couldn’t easily put a wall through here without paying on both sides. Putting a tariff between those would cause significant damage on the Canadian side, too.”

“My guess is that we’ll be OK, but who knows?” Merritt added.

MAINE NOT AMONG TARGETED STATES

On Friday, Canada published the final list of tariffs that will stay in place unless the Trump government rescinds its own import taxes. Canada intends to place a 25 percent tariff on American steel and iron and a 10 percent tariff on aluminum and other U.S. products, worth about $12.6 billion in all, the exact impact U.S. tariffs have on Canada.

The tariffs will make it more expensive for Canadian importers, costs that will likely be passed on to Canadian consumers.

Maine is on the lowest tier of U.S. states in terms of its exposure to proposed Canadian tariffs. New York, Pennsylvania, Ohio, Michigan and Illinois all have more than a billion dollars worth of goods that are subject to Canadian countermeasures, according to a Business Insider analysis.

Product choices aren’t random – Canada has targeted some politically important states for Trump and Republicans. Pennsylvania’s $62.7 million worth of Heinz ketchup exports are at risk, and so is $31 million worth of Ohio-made Smucker’s jam. Even states far away from the Canadian border could get hit – about $121 million worth of Florida orange juice will get slapped with an import tax.

Still, Canadian countermeasures will affect only a sliver of U.S.-Canadian trade, worth $635 billion a year – the largest bilateral trading relationship in the world, said David Alward, the Canadian consul general in Boston.

“We are your largest customer, by far, quite frankly, and we value that relationship very importantly,” he said. Across the country, U.S. and Canadian industries and supply chains are integrated to the extent that 25 percent of components in a Canadian product are made in America, Alward added.

Despite that, his country had to respond to the national security excuse the Trump administration used to implement its tariffs against Canada and Europe, Alward said.

“That is very difficult for Canada to take. It flies in the face of what the partnership is about,” Alward said.

RELATIONSHIP ‘HARD TO DISMANTLE’

But Canada is dependent on markets such as Maine for commodities, reducing the likelihood of damaging tariffs here, said Stefano Tijerina, a political science professor at the University of Maine.

“We export cheap raw materials that they then add value to and although they could be self-sufficient in lumber and lobster, Canadian businesses would then have to obtain these same raw materials at a much higher price within their market,” he said.

“Businesses that are always looking for cutting costs would not be willing to play the ‘nationalist’ game; they are more interested in playing the game of the market.”

Unless Canadians take a sharp nationalistic turn and stop vacationing in Maine or buying Maine materials, the relationship is likely to weather the current storm, Tijerina said.

“At the end of the day, it is hard to dismantle all these little pieces that have been building an interdependent economy between the two since the 1850s.”

CONCERN AMONG BOATBUILDERS

Maine’s biggest Canadian exports, such as lobsters, worth almost $216 million, and rough lumber, worth $108 million last year, aren’t affected by tariffs, but specialty products are.

Maine’s maple syrup exports, worth $8.3 million last year, will be taxed at 10 percent under the tariffs. Even that won’t have a huge impact on the state’s maple industry, said Lyle Merrifield, president of Maine Maple Producers. Maine’s maple products were worth $23.8 million in 2017, according to the U.S. Department of Agriculture.

“From the information I’ve gathered, it is not going to have a big impact on our industry,” Merrifield said. Some of Maine’s biggest maple producers are Canadians, he added.

“I don’t mean to belittle it and be concerned about the handful of producers that are going to lose out, but it is really not going to have a big effect on us,” Merrifield said.

It is also unclear what will happen with $34.3 million worth of prepared chicken meat from Maine that will get a 10 percent tariff. Prepared chicken makes up more than half the total value of Maine goods exposed to Canadian tariffs.

AdvancePierre Foods, which owns Portland-based chicken producer Barber Foods, did not respond to questions about the impact of Canadian tariffs. Tyson Foods, AdvancePierre’s parent company, referred questions about Canadian exports to a national poultry trade group that also did not respond to questions about tariff impacts.

Officials in Maine’s boatbuilding industry are concerned about the effect of Canadian tariffs on their vessels, but say the trade war won’t bring business “to a screeching halt.”

Rifts between the U.S. and Canada are worrying some in Maine’s boat-building industry.

Maine exported almost about $7.5 million worth of yachts and motorboats to Canada last year, but sales have dipped in recent years because of a strong U.S. dollar, said Bentley Collins, vice president of marketing and sales at Back Cove Yachts and Sabre Yachts. Sabre’s Canadian sales had already gone from $3 million a year on average to zero, he said.

“However, the trade barriers that have been thrown up in the last few weeks have made difficult impossible,” Collins said, referring to U.S. tariffs on foreign steel and aluminum that have significantly increased production costs. “The entire exercise is a disaster and is affecting the boat-building industry nationwide in a very dramatic fashion.”

But Phil Bennett, vice president of sales at Hinckley yachts in Southwest Harbor, said selling a yacht typically takes a long time, so the current situation probably won’t sway customers’ decision-making.

“Is it going to be more difficult to sell boats now? Yes,” Bennett said. “Does our business come to a screeching halt? No.”

STONEWALL KITCHEN: ‘THIS WILL HURT’

At least one southern Maine business has taken a direct hit from tariffs, however.

Stonewall Kitchen was surprised to find almost its entire line of jams, salad dressings, ketchups and mustards targeted by Canadian tariffs.

“You almost would have guessed they were picking through our catalog when they were picking products,” CEO John Stiker said.

Based in York, Stonewall Kitchen worked overtime through June to produce and ship as much of its food products as it could to Canada before the tariffs hit.

Canada is a significant market for Stonewall, and the tariffs cover 70 percent of its export products, he added. Stonewall Kitchen has sidestepped immediate effects of the tariffs by making and shipping as much product as it can to Canada before July 1, doing a four-month production in one month. Looking forward, the company has a difficult decision: Keep prices the same and sustain the tariff cost, or hope Canadians will be willing to pay a premium for Maine-made products.

“This will hurt our business unquestionably, one way or another,” Stiker said.

While the tariffs will hit some individual companies and pinch trade overall, undoing Maine’s intertwined economic relationship with Canada will take more than a trade spat, said Howard Cody, a professor emeritus of political science at the University of Maine and an expert on Canadian politics.

Beyond the interdependent relationship between major industries like lobster, paper and wood products, Canadian companies are the state’s biggest direct foreign investors and 39,000 Mainers are employed because of Canadian trade and investment, according to the Canadian government. J.D. Irving, based in New Brunswick, is the state’s largest landowner and Canada is the dominant exporter to Maine of petroleum and natural gas, according to the U.S. Energy Information Administration.

“The economic integration between Maine and Canada is probably greater than just about any other state, I’d have to say,” Cody said. “There is this sense that Canada and Maine have always had a close connection, ancestrally as well as economically, and in a sense culturally.”

 

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