THUNDER BAY – Analysis – The prospect of a 25% tariff on all Canadian goods entering the United States would send shockwaves through the Canadian economy and have significant repercussions for both countries.
It appears that looming danger was part of the reason that Christina Freeland resigned Monday as Canada’s Finance Minister.
In her letter of resignation, Freeland wrote: “For the past number of weeks, you and I have found ourselves at odds about the best path forward for Canada.
“Our country today faces a grave challenge. The incoming administration in the United States is pursuing a policy of aggressive economic nationalism, including a threat of 25 per cent tariffs.
“We need to take that threat extremely seriously. That means keeping our fiscal powder dry today, so we have the reserves we may need for a coming tariff war. That means eschewing costly political gimmicks, which we can ill afford and which make Canadians doubt that we recognize the gravity of the moment.
“That means pushing back against ‘America First’ economic nationalism with a determined effort to fight for capital and investment and the jobs they bring. That means working in good faith and humility with the Premiers of the provinces and territories of our great and diverse country, and building a true Team Canada response.
I know Canadians would recognize and respect such an approach. They know when we are working for them, and they equally know when we are focused on ourselves. Inevitably, our time in government will come to an end. But how we deal with the threat our country currently faces will define us for a generation, and perhaps longer. Canada will win if we are strong, smart, and united”.
Politically the resignation from cabinet of Freeland, the Finance Minister and Deputy Prime Minister is a hard hit to the leadership of Justin Trudeau.
President-Elect Donald Trump spared no time in doubling down on “Governor of the Great State” in another insulting social media post.
The President-Elect appears willing to impose harsh tariffs on trade with Canada, even though that would also impact the cost of goods for American consumers as well.
The deeply integrated nature of Canada-U.S. trade means that such a tariff would inflict widespread damage, disrupting supply chains, increasing costs for businesses and consumers, and potentially triggering a recession.
Economic Fallout for Canada
- Reduced Exports: A 25% tariff would make Canadian goods significantly more expensive in the U.S. market, leading to a sharp decline in exports. Key sectors like automotive, lumber, and energy would be particularly hard hit.
- Job Losses: As exports plummet, businesses would be forced to scale back operations, resulting in widespread job losses across various industries.
- Higher Prices for Consumers: Canadian consumers would also feel the pinch as the cost of imported goods from the U.S. rises, further fueling inflation.
- Supply Chain Disruptions: The intricate web of supply chains that crisscross the border would be thrown into disarray, leading to delays, shortages, and increased costs for businesses.
- Potential Recession: The combined impact of reduced exports, job losses, and economic uncertainty could push Canada into a recession.
Impact on the U.S. Economy
While the U.S. might appear less vulnerable, it would not escape unscathed.
- Higher Costs for Businesses: U.S. businesses that rely on Canadian imports for manufacturing or production would face higher costs, impacting their competitiveness and potentially leading to job losses.
- Increased Prices for Consumers: American consumers would also face higher prices for goods that rely on Canadian inputs, such as automobiles, lumber, and certain food products.
- Retaliatory Measures: Canada would likely retaliate with its own tariffs, further escalating the trade war and harming both economies.
A Lose-Lose Scenario
A 25% tariff on Canada-U.S. trade would be a lose-lose scenario for both countries. It would damage the deeply integrated North American economy, harm businesses and consumers on both sides of the border, and jeopardize the strong relationship between the two nations.
