Steel and aluminum producers in Canada, the leading exporter to the U.S., say new tariffs announced by President Donald Trump may spark a trade war, even as they hold out hope that Canada will win an exemption given the extensive cross-border ties.

Trump said he intends to slap a 25 per cent duty on steel imports and 10 per cent on aluminum in order to protect the national industry. The decision sent U.S.-based producers rallying but will hurt companies that ship steel and aluminum from Canada, including Rio Tinto Group (RIO.N) and Stelco Holdings Inc. (STLC.TO)

Canada will take “responsive measures” to defend its trade interests if any tariffs are imposed, said Foreign Affairs Minister Chrystia Freeland in a statement.

“As the number one customer of American steel, Canada would view any trade restrictions on Canadian steel and aluminum as absolutely unacceptable,” she said, noting that the U.S. runs a US$2 billion trade surplus in steel with Canada.

Businesses with steel and aluminum operations in Canada were also swift to respond.

“The President has just initiated an all-out trade war,” said Jean Simard, chief executive officer of the Aluminum Association of Canada. Aside from the direct impact on the countries affected, Europe will need to protect itself from a flood of redirected metal because the U.S. is not an open market anymore, he said.

London-based Rio Tinto, which ships more than 1.4 million metric tons of aluminum to the U.S. annually from Canada, said it will continue to lobby Washington for an exemption given the highly integrated Canada-U.S. market for autos and other manufactured goods.

STELCO DROPS 

“Aluminum from Canada has long been a reliable and secure input for U.S. manufacturers – including the defense sector,” Rio Tinto spokesman Matthew Klar said by email. “We will continue to engage with U.S. officials to underscore the benefits of the integrated North American aluminum supply chain, including the jobs it supports on each side of the border.”

Shares of Canadian steel producer Stelco Holdings fell as much as 6.1 per cent. The U.S. accounted for about 14 per cent of Stelco’s sales in the last six months of 2017, though the American auto industry is a major growth target for Chief Executive Officer Alan Kestenbaum. He said on the company’s earnings call last week that he was hopeful Canada would be exempt from the tariffs.

Joseph Galimberti, president of the Canadian Steel Producers Association, said his organization has been “pushing hard” for an exemption. The U.S. hasn’t yet indicated if any countries will be excluded. A tariff would hurt Canadian producers in two ways: by raising costs for buyers in the U.S. while also potentially diverting other steel production to flood Canada’s own market, he said.

“If Canada’s not actually exempted, if a 25 per cent tariff is imposed, the government is going to have to be equally reactive in terms of what they do from a domestic policy perspective,” Galimberti said.