The U.S. and Canadian governments agreed to a trade deal just hours before a U.S.-imposed deadline. The deal, which replaces the North American Free Trade Agreement, will be called the United States-Mexico-Canada Agreement.
It’s unclear whether the USMCA will eliminate the Trump Administration’s Section 232 tariffs on imported Canadian steel and aluminum. Those tariffs prompted Canada to impose retaliatory tariffs of 10 percent on U.S.-built boats, which have hurt U.S. builders that export to Canada and Canadian dealers that represent them.
“It’s clearly a positive thing to have the new agreement, but we don’t know yet if the final deal removes the retaliatory tariffs,” said Thom Dammrich, National Marine Manufacturers Association president, shortly after the announcement. “The administration’s earlier deal with Mexico did not remove the 232 tariffs, so we need to wait for more details. We’re hoping this is the beginning of the removal of the tariffs with our biggest trading partner.”
Several weeks later, the industry was still waiting for clarification. “We haven’t heard a word,” says Rob Parmentier, CEO of Larson-Marquis Group, which is based in Pulaski, Wis. “Canada represents 30 percent of our annual production, and it’s a mess.”
Parmentier says many Canadian dealers have asked his company to put their 2019 orders on hold to see whether the tariffs will be lifted. With increasing demand from U.S. dealers, boatbuilders such as Larson cannot afford to tie up production slots that may or may not eventually become solid orders. “What we’re experiencing is really painful,” Parmentier says. “A lot of the dealers up there are saying hold my orders until the boat show season in January. Another had boats in the system before the tariffs came into effect, and we had to help pay the tariffs when the boats shipped across the border.”
“This is the toughest thing I’ve dealt with in my business in 30 years,” adds Dave Mayhew, owner of The Boat Warehouse, which has several locations in Ontario. It is the world’s largest Four Winns and Lowe dealer, and the second-largest Glastron dealer. “We’ve gone through bankruptcies, changes of ownership and tremendous swings in the exchange rate, but we’ve never faced anything like these tariffs. We’re at a standstill.”
The tariffs are not only causing a “tremendous amount of uncertainty” for Canadian dealers, Mayhew says, but they are also a significant drain on cash flow. He says the uncertainty is one of the most painful parts of the tariff scenario. “If we order a bunch of boats and the tariffs are lifted in the next few weeks or a month,” he says, “we have no guarantee that we’ll get repaid that 10 percent. If one of our competitors waits and orders boats, he has a 10 percent competitive advantage, and we’ll likely have to sell the boats without a profit.”
The other issue hurting the dealers is cash flow. “There is no way to finance these tariffs, so we end up paying from our cash reserves,” Mayhew says. “Ten to 12 percent is a significant amount of money. It would end up being $4,000 on a 19-foot sterndrive boat. You can’t add that to the cost of the boat.”
Since The Boat Warehouse is one of Canada’s largest stocking dealers, Mayhew says if he orders the typical number of boats, it could suck $2 million to $3 million for tariffs from the company’s cash reserves. “I consider myself pretty aggressive when it comes to ordering, but I can’t put the company’s future at risk by putting us too far out there,” he says.
This article originally appeared in the November 2018 issue.