The Algoma Steel plant on March 25. As Algoma’s fortunes wax and wane, so too do the prospects of the border city of Sault Ste Marie, where the steel company’s one and only plant is located.Fred Lum/The Globe and Mail
More than 30 years after serving in the U.S. military, Algoma Steel Group Inc. ASTL-T chief executive officer Michael Garcia is once again in the line of fire. But instead of facing a foreign military foe as he did in the 1990/1991 Gulf War, the threat is economic, and the aggressor is his own countryman.
On March 12, U.S. President Donald Trump levelled a 25-per-cent tariff on Canadian steel imports, making it significantly harder for Sault Ste. Marie, Ont.-based Algoma to win business in the United States, which accounts for more than half of its revenue.
Mr. Garcia, who grew up in an Arizona mining town, served in the U.S. army from 1986 to 1991, holding various roles, including tank platoon leader and scout platoon leader with 30 soldiers under his command. Even though he was willing to put his life on the line for the U.S., Mr. Garcia has no problem defending Canada. In fact, he’s all in on Canada.
He moved to Sault Ste. Marie after becoming CEO of Algoma in 2022, has learned how to drive in the snow and found out the hard way what happens when you don’t winterize your outdoor plumbing before the deep freeze sets in. Mr. Garcia views Mr. Trump’s threat to make Canada the 51st state as destabilizing and his trade war as a flawed strategy.
“As an American running a Canadian company, the good thing is I don’t feel a shred of conflict,” he said in an interview at the company’s headquarters and steel plant in Sault Ste. Marie.
Algoma Steel CEO Michael Garcia views Mr. Trump’s threat to make Canada the 51st state as destabilizing and his trade war as a flawed strategy.Fred Lum/The Globe and Mail
“I truly believe that an integrated supply chain based on free and fair trade is in the interest of both countries.”
Algoma is one of the companies that is affected the most by this round of Mr. Trump’s tariffs. It is the only independent primary steel producer left in Canada. Dofasco and Stelco, which have massive operations in Hamilton, are both owned by foreign companies, which have operations in other countries that are insulated, and in some cases, benefiting from the tariffs. As Algoma’s fortunes wax and wane, so too do the prospects of the border city of Sault Ste Marie, where the steel company’s one and only plant is located.
“Either you work for Algoma Steel, or you work for a company that works for Algoma, or you rely on Algoma employees to be your customers,” said Bill Slater, president of United Steelworkers Local 2724.
Founded in 1901 by American financier Francis Clergue, Algoma aided the industrialization of modern-day Canada and helped keep it secure militarily, making steel for artillery shells for the Allied side during the First World War.
Algoma has faced massive upheaval before, including the Great Depression of the 1930s, the emergence of the Chinese in the late 1990s as a ferocious competitor, the great financial crisis of 2008 and the earlier temporary tariffs levelled on the Canadian steel industry by Mr. Trump during his first term.
This latest Trump tariff crisis strikes at a particularly inopportune time for Algoma. After a multiyear design, procurement and construction phase, next month it will debut its electric arc furnace technology, a fundamental change in how it makes steel. EAFs use scrap steel and massive amounts of electricity, and will replace the highly polluting blast furnace and coke ovens.
The phasing in of two EAFs and the decommissioning of the blast furnace should be complete by the second half of 2026. The projected reduction in carbon emissions is more than 70 per cent. Eventually gone will be the ugly smoke stacks and much of the sulphur smell that permeates the air at the Sault Ste. Marie plant. But with $875-million to be spent on the EAFs in total, and most of that already spent, the pressure to get it right is immense.
“Without a doubt, we’ve been under the spotlight because of this project,” Mr. Garcia said.
After a multiyear design, procurement and construction phase, next month Algoma will debut its electric arc furnace technology.Fred Lum/The Globe and Mail
But weeks ahead of the EAF rollout, the company is being pulled in another direction, desperately trying to mitigate the damage from the tariffs. Since Algoma is classified as the importer of record in the U.S., it pays the tariff, (not the customer), meaning it is a direct 25-per-cent hit on its revenue.
On paper, the solution to Algoma’s U.S. problem seems obvious: Sell that steel to Canadian customers instead. Steel demand in Canada is more than domestic suppliers produce. There’s a big nationalistic push to buy Canadian. Meantime, Algoma is the only Canadian producer of steel plate, which is used in shipbuilding, construction and military applications, something that gives it a leg up against the competition.
But in some ways winning domestic business is harder than competing in the U.S., even with the tariff. That’s partly because of the huge influx of cheap foreign steel into Canada from China, South Korea, Malaysia, India, Vietnam, the Middle East and even Europe, Mr. Garcia said. Recently, the company went head to head against a Turkish competitor on a steel plate contract. Algoma was aghast at the price the Turks were coming in at.
“The price that the Turkish mill was offering was very low,” Mr. Garcia said. “So we have to decide, do we match that price and make really no margin, or very little margin, but keep the Turkish steel out and keep imports from being in the market. Or do we pass?”
This is a reality the company faces over and over in Canada. In cases when Algoma suspects a foreign steel mill is dumping product into the market, it can file an unfair trade case with the Canadian government. But cases can take up to 18 months to play out, in part because of lack of government resources, Mr. Garcia said. Meantime, Canada takes an “innocent until proven guilty” approach to dumping, he said. By the time the case is resolved, the steel contract is most likely lost to the foreign competitor.
Luke Reimer, spokesperson with Canada Border Services Agency, in an e-mail to The Globe and Mail said that Canadian investigations into allegations of harmful dumping typically take about seven months from when CBSA starts a probe, until the Canadian International Trade Tribunal makes a final decision, which could include the imposition of anti-dumping duties.
“[Dumping] investigations can be complex, with their scope evolving depending on the evidence and arguments that the concerned parties submit. Nonetheless they follow a robust process under established timeframes to ensure that Canadian industry can compete fairly with imported goods,” he said.
But Mr. Garcia says the U.S. is far more aggressive in going after foreigners suspected of dumping, acting with far more haste, and adopting a “presumed guilty” assumption.
This protectionist approach predates the current Trump administration. Under the Inflation Reduction Act enacted under former U.S. president Joe Biden, foreign steel producers, such as Algoma, have effectively been barred from bidding on government-funded contracts. That’s because of the unambiguous wording from the U.S. government that stipulates the steel must be melted and poured in the U.S. (barring an exceptional exclusion).
Canada has a version of this but it is less stringent. Earlier this month, then-industry minister François-Philippe Champagne told his department to “prioritize” funding of projects that use Canadian steel and aluminum, in response to the U.S. tariffs on both metals.
“A priority. We’re not sure what that means in practice,” Mr. Garcia said.
Algoma employs about 2,750 people in Sault Ste. Marie and there are more than 6,000 drawing a pension from the company. Well before the tariffs threat, the work force was already on edge. The new furnaces won’t need nearly as many people to operate them and consequently Algoma plans to reduce its head count by about 1,000.
Union president Mr. Slater views the EAF technology as a double-edged sword, something that should make the company’s long-term survival more secure, but will also eliminate many jobs in the medium term.
Then there’s the immediate impact of the tariffs on the work force. Twenty-eight employees have been laid off in the past few weeks but three have since been called back.
Any time an Algoma employee loses their position, the reverberations are felt far and wide.
Algoma is the city’s biggest taxpayer and by itself funds about 5 per cent of the budget, according to the mayor’s office. Half of the city’s economic activity can be traced back to Algoma, everything from steel contractors, machine repair companies, industrial cleaning services and small businesses such as home repair, grocery stores and greasy spoon diners. Mayor Matthew Shoemaker’s father worked for Algoma for 35 years.
“Other than potholes, what people want to talk about, and what people approach you about at the hockey rink, the movie theatre, or the grocery store, is the Trump tariff situation,” he said.
“It’s causing a lot of anxiety locally, and understandably so. You would not have to go many degrees of separation for anyone in town to find an Algoma Steel connection.”
Mr. Shoemaker is doubling down on his efforts to broaden the city’s industrial base further to offset the hit from the steel tariffs. He’s appealing to the Ontario government to move more of its lottery administrative jobs to the city. Sault Ste. Marie is the headquarters of the Ontario Lottery Corp., but over the years, the Toronto corporate office has captured many of the new jobs.
“It makes more sense to consolidate the OLG jobs locally, if it’s going to help us weather the tariff storm,” he said.
What everyone in Sault Ste. Marie seems to agree on is the back and forth from Mr. Trump on tariffs is driving people crazy. A few weeks ago, he briefly threatened steel tariffs of 50 per cent, a level that many in the industry would acknowledge as a doomsday scenario. After a call with Ontario Premier Doug Ford, the U.S. backed off, but still plowed ahead with the 25-per-cent rate.
“We don’t even know if these tariffs will stay,” said Eugene Palarchio, owner of Paesano Foods, which is just down the road from Algoma’s plant. “The uncertainty is actually worse because nobody can prepare for it.”
Eugene Palarchio, owner of Paesano Foods, on March 26. He estimates at least 30 per cent of his business is from people who work for Algoma.Fred Lum/The Globe and Mail
Mr. Palarchio’s father founded the fresh meats, hot deli grocery and seafood business in 1965. Eugene took it over when he was 17. He’s now 62. He estimates at least 30 per cent of his business is from people who work for Algoma.
Then there’s his American customer base, which represents another 8 per cent to 10 per cent. Just across the St. Marys River is Sault Ste. Marie, Mich. Owing to the acrimony, fewer people are crossing the border on both sides. Passenger traffic crossing to the American side was down 23 per cent in February compared with the year before, according to the mayor’s office. Mr. Palarchio has seen a drop in business from his American customers, too.
“They’re probably just like we are,” he said. “We think twice about going over there now,”
Back at Algoma’s HQ, its CEO eyes the company’s battered stock price, and wonders about another X-factor – the possibility of an opportunistic acquirer showing up and liquidating everything. That’s because the company’s market value of around US$605-million has drifted lower than its book value, which is what shareholders would receive if the company was liquidated, and includes all its steel inventories, its equipment and the cash on its balance sheet.
“Any time you see that disconnect you see a risk,” he said.