CP Notebook: Talking Chemicals in Canada with Greg Moffatt

In January, Greg Moffatt became the new president and CEO of the Chemistry Industry Association of Canada. For our U.S. readers, the trade group, also known as CIAC, is Canada’s version of the American Chemistry Council. 

We reached out to Moffatt shortly after President Trump announced his plans to place a 25% tariff on imports from Mexico and Canada. Trump later put the tariffs on hold for 30 days after Canada and Mexico agreed to take steps to stop the flow of fentanyl into the U.S. We wanted to know how the proposed tariffs could impact the chemical industry globally (See “Trump's Proposed 25% Tariffs Threaten Canadian Chemical Industry's Growth”). 

The following is an edited version of that conversation during which Moffatt shared his views on the current trade situation between Canada and the United States and the overall state of the chemical industry in his home country.  

CP: What is your overall sense of the proposed tariffs and their potential impact on the chemical industry, both in Canada and the global supply chain?

GM: The chemistry sector is highly integrated in North America, and I would say the degree of that integration, frankly, is reflected in The United States-Mexico-Canada Agreement that was renewed in President Trump's first term. The U.S. chemical industry posted a trade surplus of more than $30 billion in 2023. U.S. trade with Canada is very much in balance, if not completely in balance, so it’s highly concerning to us when tariffs come into play. We were strongly urging the Canadian and American governments to sit down and negotiate on the reasons why tariffs were on the table — whether it's immigration or the movement of fentanyl. We're quite happy to see that that took place yesterday [Feb. 3] and there’s been a 30-day suspension on the proposed tariffs.  

CP: Are you concerned that if tariffs go into effect, large projects, like Dow’s Path2Zero initiative in Canada, could be at risk?

GM: Certainly, that is the most significant chemical manufacturing project currently under construction. We're aware of others in Western Canada and projects that are being proposed and advanced in other parts of the country like Ontario and Quebec. And if you haven’t broken ground yet on a project, this causes you to pause and think about the business environment that you thought this facility would be coming into. And depending on where your customers for your products are, chemistry isn't one thing. It's not like cement or steel, where everybody produces the same commodity. Chemistry is a whole bunch of different things to a whole bunch of different people. 

You've got large global players, and then you've got small- to medium-sized enterprises that are family-owned with less than 100 employees. The potential for tariffs and any retaliatory action that might take place is going to affect everybody a little bit differently.

We're hearing anecdotally from some of our smaller members that their sales of manufactured items here in Canada are almost entirely in the U.S. And if Canada were to implement retaliatory tariffs, companies that import their resins from the U.S. would be hit on the Canadian side. So again, there's no one-size-fits-all in terms of how this is going to impact the industry. It certainly has everybody in the sector very, very concerned, and the potential impacts are very significant. I would guess it's simple to say tariffs and retaliatory tariffs would be painful. 

CP: How might tariffs reshape the existing supply chain relationships that have developed between the United States and Canadian chemical companies?

GM: That's hard to say. The reason why the relationship between the U.S. and Canada is so strong is we produce chlorine in British Columbia and Quebec, and it gets exported from British Columbia into the U.S. West — Washington, Oregon, California. From Quebec, it goes into the U.S. Northeast. And the reason why that takes place is because chlorine manufacturing in the U.S. is far away from those markets. And so there are cost implications. You can't really pivot super quickly to construct a chlorine manufacturing facility to meet U.S. demand, so that's one specific example. 

And there are others, right? In Canada, we're producing polyethylene, polypropylene rubbers, sulfuric acid, hydrochloric acid, hydrogen peroxide. There's just a broad spectrum of goods that are manufactured here, and they're sold into the U.S. market, and they're key contributors in the value chain. It would be very, very difficult, and it would take years for that capacity to be constructed.

So, there would be some short-to-medium-term pain for sure. And I guess these are high hypotheticals. We would say it's critically important that the Canadian government and the U.S. government sit down and come to an agreement. 

Canada and the global economy have known that these large economies like the U.S. were looking to reshore domestic manufacturing capacity. What we're seeing today shouldn't be new, but unfortunately enough, we didn't really do anything in the last 10 years to address the competitiveness issues that exist within the Canadian economy, especially in the manufacturing sector. We desperately need the Canadian government, both federal and provincial, to address tax reform and regulatory reform issues. We need to double down on investments in our critical infrastructure, and in Canada, we need to come to terms with the near-annual labor disruptions that have really jeopardized Canada's relationship as a trusted trading partner. And we need to open new markets.

The United States is our neighbor. It's easy to do business with your neighbor, and you kind of become complacent when you can sell your bids to your neighbor. From Canada's perspective, we need to make ourselves more competitive. We need to build new markets. 

CP: Is that over-reliance on the U.S. more of a policy issue or is it on the sector itself to start looking beyond the U.S. as a trading partner?

GM: I would say, in that particular respect, there's no distinction between the chemistry sector and other sectors. Canada's always been drawers of water, hewers of wood, right? We take our natural resources, and we've done a pretty good job of allowing those resources to go to other markets where value's added. And we've absolutely seen some opportunity in Canada where governments are addressing that. 

In Alberta, it's the Alberta Petrochemicals Incentive Program. They're trying to support and encourage new value-added resource manufacturing projects like the [before mentioned] Dow Path2Zero in Canada. You've seen them move on investment tax credits, which was a reflection of the 45Q [tax credit for carbon capture] efforts in the U.S. to drive new investment. I just think from a Canadian perspective, economy-wide, not just the chemical manufacturing sector, we need to double down on efforts. 

It's not all just incentives. We need to look at our tax system. We need to look at our regulatory approval system. We need to look at our critical infrastructure, and we need to start thinking about opening access to new markets so we aren't reliant on our neighbor who sometimes says that they don't want to trade with us or make it difficult.