In the month of March, I crossed the Canada-U.S. border 7 times because of work commitments. Only one of those crossings was at a land border, which was at the Sweetgrass, Montana - Coutts, Alberta crossing. While in line waiting to enter Canada, a semi pulled up beside us in the commercial lane hauling a brand-new New Holland CR 8.90 combine, obviously on its way to an equipment dealer in Alberta.
This model is a flagship of the NH brand and is built at New Holland’s global Center of Harvesting Excellence in Zedelgem, Belgium. These and other models manufactured at this plant make their way to Canada via the United States. While our wait at the border lasted 30 minutes, the truck carrying the combine crossed the border in less than two minutes. This example speaks to the easy movement of farm equipment across the Canada-U.S. border that OEMs, dealers, and customers have experienced since the end of World War 2.
So the question remains: will the relatively free movement of farm equipment continue after President Trump’s 25% tariffs and Canada’s counter tariffs come into play?
I write this on the day that President Trump announced a 25% tariff on automobiles entering the U.S. Most notably, through the Canada–United States Automotive Products Agreement, (commonly known as the “Auto Pact”) in the 1960s, and 3 trade agreements between Canada and the U.S. since then, the North American auto industry is fully harmonized. Parts, components, accessories, and complete vehicles cross the border uninhibited on a daily basis. There are no models made specifically for the Canadian or U.S. consumer. They are just “North American” models.
Like automobiles, there are “North American” models for the farm equipment industry as well. The North American farm equipment industry is quite harmonious but not as integrated as the auto industry. That should give us all pause that there are turbulent times ahead. If tariffs are applied on autos, can we expect farm equipment will be spared? So far, every indication that our governments have given us is no.
President Trump’s 25% tariffs will be applied to all Canadian specialty and short line products manufactured in Canada and exported to the U.S. In response, the Canadian government is planning to implement a counter tariff of 25% of all agricultural equipment coming from the U.S. into Canada. This disruption is coming at a time when we are seeing double-digit percentage decreases in year-over-year sales in almost all product categories, and reports of OEMs laying off production staff at their manufacturing facilities.
In my opinion, there never is a good time for tariffs like this, but this border war is perhaps coming at the worst possible time for the industry. Just as we come out of the supply chain issues created by the pandemic, we see both demand and sales drop.
Speaking to dealers on both sides of the border, I sense that Canadian dealers are more aware of the negative implications of this tariff battle than their U.S. counterparts. Imagine the conversation that a Canadian dealer has to have with a customer who has ordered a $1 million combine and is now told that that combine is going to cost $1.25 million with the tariff added in. The conversation for the U.S. dealer would be the same for a $750k air drill built in Canada that now has a U.S. 25% tariff.
For those of us who have been around for a while, we have seen after-order price increases or steel surcharges in the past, but never anything this extreme. Tariffs will negatively impact OEMs and dealers, but ultimately cost increases are passed on to customers. Customers are already cancelling orders, leaving dealers with more inventory — while at the same time, they have an oversupply, and used equipment levels have grown.
Back to that CR 8.90 combine that I saw crossing the border. We need clarity as to whether a tariff would apply in that case. It was manufactured in Western Europe and is shipped by a U.S. entity into Canada. Whether the tariff does or doesn’t apply, it’s problematic for the industry. We will see either added cost due to the tariff, or significant competitive price advantage on select products manufactured outside North America.
Notably, this is just an example of new whole goods. The tariffs would also apply to used equipment and parts.
So, what is the solution? A strong message to both governments is to leave our industry alone. But I don’t hold out much hope. If tariffs are being applied to the auto industry, how can we expect to be exempt? But that doesn’t mean we should lay down. It is satisfying to see a wide range of organizations from OEMs to dealer and producer group associations take a hard-line and vocal lobby stance in both countries. But, failing that, the dealer – OEM relationship has to come into play. Conversations are taking place between dealers and their OEMs on tariff relief. Although this is a mixed bag depending on the OEM, the fact that these conversations are being had speaks to the true partnership that OEMs and dealers want to have.
We will get through this. This industry is resilient and always finds a way. Whether it’s Covid, supply chain, plant strikes, interest rates, 9-11, or weather (to name a few), the industry always comes through and continues to help feed and clothe the world.
