Trump’s latest trade actions are ‘not an escalation,’ economist says
- Economists believe the recent U.S. import bans and tariff adjustments on Canadian goods, including alcohol and dairy, will have a limited overall economic impact on Canada, though some sectors will be severely affected.
- The Canadian alcohol industry faces significant hardship as 90% of its exports to the U.S. are banned, potentially causing substantial sales losses and layoffs in affected businesses.
- Experts warn that the use of import bans signals increased economic tension, putting the future of the Canada-United States-Mexico Agreement (CUSMA) at risk and prolonging trade uncertainty that hampers investment and hiring.
- While the federal government is providing $7.5 billion in aid to mitigate tariff effects, the tariffs are expected to reduce Canada’s GDP by up to 0.4%, potentially causing economic stagnation or contraction if they persist.
OTTAWA – The economic impact from U.S. President Donald Trump’s latest series of presidential proclamations targeting trade with Canada will not have significant impact on the Canadian economy, according to economists.
“I think the overall effect might be limited,” said Trevor Tombe, economist and professor at the University of Calgary. “Adjusting what products are covered by the tariffs isn’t something that should be, in my view, interpreted as escalation.”
On Tuesday evening, Trump announced import bans on certain Canadian goods, including some alcoholic beverages, from being imported to the United States.
The orders from Trump also ban some dairy products and motorcycles, while adding more products to the list of Canadian exports subject to 50 per cent tariffs that came into effect last month.
Trump also removed 50 per cent tariffs from several products, including toilet paper, cement, bedsheets and salt. The bans will come into effect at the end of this month, and the modification of tariffs under Section 338 of the Tariff Act of 1930 will take effect on Sept. 15.
“They realized they had hit things that they shouldn’t have, and so they took about $1.7 billion dollars off their list, added different products, almost as a one-for-one swap,” said William Pellerin, international trade partner at McMillan LLP, noting that the newly added items on the tariff list amount to about $1.8 billion.
Pellerin, like Tombe, said Trump’s latest announcement should not be interpreted as a major escalation in the trade conflict between Canada and the U.S.
However, one industry that is set to be hit the hard is the Canadian alcohol industry, with outright bans on Canadian alcohol products.
Tombe said the ban will impact 90 per cent of Canadian alcohol exports to the U.S., adding that roughly 13 per cent of Canadian alcohol production is exported to our southern neighbour.
It is the first time Trump has used import bans, which Capital Economics economist Stephen Brown interprets as bad news for the possibility of resolving the trade dispute and renewing the Canada-United States-Mexico Agreement (CUSMA).
“Nonetheless, Trump’s willingness to impose an import ban is further evidence, if it were needed, that these latest measures are about inflicting economic pain rather than raising revenue,” said Brown, in a note to clients.
“That calls into question our assumption that the sides will eventually resolve their broader differences around the USMCA, leaving the agreement in limbo and at risk of breaking down entirely,” he added.
Brown estimates the bans will impact just 0.25 per cent of Canadian exports to the U.S.
Pellerin said the import ban sounds like tough language, but he noted that much of the products that are subject to the ban, were previously hit by the 50 per cent Section 338 tariffs.
“In many cases, that 50 percent tariff effectively worked as an import ban already, right?” he said.
Tombe said the U.S. action is mimicking the alcohol bans carried out by provincial liquor boards in Canada.
Pellerin said while the macroeconomic impact might be limited, new products added to the Section 338 list of tariffs could be devastating for some companies.
“That’s catastrophic,” he said. “That business will see its sales potentially go to zero in the United States,”
Pellerin said that will be mean layoffs.
Tombe said trade uncertainty with the U.S. will continue to have a lasting negative impact on the Canadian economy.
“We’re about two per cent smaller as an economy than what was projected to be at this point,” he said. “That’s because of the uncertainty.”
Tombe said that uncertainty contributes to a drag on investment and hiring decisions.
The federal government has promised $7.5 billion in aid to help businesses and workers deal with the impacts of tariffs.
Brown said the 50 per-cent tariffs imposed by the U.S. will lead to a 0.4 per-cent hit to Canada’s GDP, with the federal government’s fiscal cushion only partially offsetting the drop in economic activity.
“While this should be partly offset by the Canadian government’s increased fiscal support for the affected firms and workers, there would also likely be a negative effect from delayed investment and hiring among other firms worried about the prospect of future U.S. tariffs,” he said, in a note. “As a result, Canadian GDP is likely to stagnate or even contract in the fourth quarter if the tariffs remain in place. ”
National Post