Canadian success story braces for Trump-NAFTA fallout

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TORONTO — As the Trump administration pushes for a new America-first trade policy that discourages cross-border supply chains, Linamar Corp. stands as an example of how well the opposite approach works.

Linamar, a Canadian supplier of precision powertrain components, is a poster child for free trade.

Founded in 1966 by a refugee fleeing Soviet aggression in his native Hungary, Linamar now has 24,500 employees spread around 12 countries. Its production and supply chain weave in and out of dozens of nations. A single one of its parts might cross seven borders before finding its final home in a completed North American-made vehicle.

That global flow of materials and processes has paid off handsomely. With sales of about $6 billion a year, the company posted its 22nd quarter of double-digit earnings growth at the end of 2016, and investors have been rewarded: Linamar’s shares have soared almost 30-fold since their low after the financial crisis in 2008.

Enter U.S. President Donald Trump.

Last week, after calling the North American Free Trade Agreement a “disaster,” the U.S. president lashed out against Canada’s lumber and dairy industries. A renegotiation of the free trade pact is looming, and U.S. House Speaker Paul Ryan is pushing a 20 percent border tax.

Later in the week, the president threatened via Twitter that if the United States could not renegotiate a more favorable NAFTA, he would terminate the trade agreement.

“We need to break down barriers in how we work together, not create new ones.” Linda Hasenfratz, CEO

Hitting home

Linamar CEO Linda Hasenfratz, 50, is undaunted.

“We need to break down barriers in how we work together, not create new ones,” she said in an interview at her headquarters in Guelph, Ontario, an hour’s drive west of Toronto, where her father, Frank, started machining parts in his garage in 1966. Hasenfratz took over from him in 2002, making the company even more global with a push into Asia.

“I continue to be a big believer in globalization and free trade,” she said. “Let’s tap into where the strengths are and not worry about where the borders are.”

She said similar words to Trump directly during a visit to the White House in February with Canadian Prime Minister Justin Trudeau. Hasenfratz thinks cooler heads will prevail and that any real changes to trade between North America’s neighbors won’t come close to the level of the new era of protectionist rhetoric.

“The onus is on us in the automotive industry, and other industries as well, to illustrate the consequences of proposed actions,” she said.

On the day of her meeting at the White House, Trump said that Canada’s relationship with the U.S. within NAFTA needed only a “tweak,” as opposed to more serious changes with Mexico.

But last week, he targeted Canada, calling its dairy trade a “disgrace,” and last Monday slapped tariffs of up to 24 percent on Canadian softwood lumber.

Trade damage

Free trade in North America has been the foundation of auto companies’ business plans for decades, said Tony Faria, director of the Office of Automotive Research at the University of Windsor in Ontario.

“If that value of merchandise is tariffed, taxed each time it’s crossing the border, that would significantly increase the cost of auto parts and finished automobiles,” he said. “It would be hard to even identify in advance how much damage there would be.”

Even if a new NAFTA leaves the Canada-U.S. relationship unscathed, changes on how goods cross the U.S.-Mexico border could still hurt Linamar. The Canadian-based company has several facilities in Mexico and sources many of its subcomponents from the country.

Keeping the continent connected is key for the competitiveness of the U.S. auto sector, Hasenfratz contends. Her office is filled with gleaming metallic parts the company has produced.

“Eighty percent of the world’s automotive production and sales is outside of North America, so it’s critical for us to maintain the very best cost, quality and technology of products here,” she said.

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