U.S. President Donald Trump’s threat to place tariffs on Canada’s auto industry has business owners and consumers bracing for what could be an all-out trade war that has the potential to transcend the North American economy and snuff out global economic growth.
Trump’s threat came June 9 in a tweet after he watched Canadian Prime Minister Justin Trudeau tell a press conference that Canada “will not be pushed around.”
Trudeau had announced a wide range of tariffs set to go into effect July 1 against up to $16.6 billion in U.S. imports of steel and aluminum as well as products such as maple syrup, whiskies and chocolate bars.
The move was in response to Trump, on May 31, slapping a 25% tariff on some steel imports from Canada and a 10% duty on aluminum imports from Canada.
Erecting more barriers to free trade in North America promises to be costly for businesses and consumers.
Markets were notably calm in the first few days that followed Trump’s threat of instituting tariffs on Canadian automobiles. The Toronto Stock Exchange and the Canadian dollar remained relatively flat, which Central 1 Credit Union chief economist Helmut Pastrick said could be the result of people viewing Trump’s remarks as “all bluster and negotiating tactics.”
Pastrick fears, however, that Trump could be serious about hiking tariffs on a variety of products from countries around the world.
“Globally, [if] the three large economies – the U.S., China and the European Union – become involved in escalating trade skirmishes, then you would see global growth, and the various economies of the world, suffer and slow down,” Pastrick said.
“That would be quite negative, and it could happen. I would hope that it’s a less than 50-50 probability, but you never know with Mr. Trump.”
He suggested that tariffs could derail the Canadian economy, causing business owners to potentially postpone capital investments and the Bank of Canada to either postpone planned interest rate hikes or, if sluggishness persists, cut interest rates.
That, Pastrick said, could push down the value of the Canadian dollar.
Ontario would be Canada’s hardest-hit region if the U.S. slaps tariffs on car parts and vehicles, Pastrick said, because it has the largest cluster of businesses in that sector.
However, Canadian Autoparts Toyota Inc., which is also known as CAPTIN and is a subsidiary of Toyota Motor Corp., manufactures close to 10,000 vehicle-wheel rims per day at its 97,000-square-foot plant in Delta, according to Stantec, which designed its facility.
There is also concern about tariffs at Rio Tinto’s 1,000-employee aluminum smelter in Kitimat.
“We would be hit if there is a trade war,” said Apex Aluminum Extrusions vice-president Bill de Koning.
“We have a lot of customers in the U.S. All of a sudden, my product becomes 10% more expensive. We get some raw product from the U.S., about 80% of it, that we convert into extrusion. Depending on the countervailing duties, we’ll be hit with that as well.”
Tariffs of up to 270% that Canada uses to protect its dairy industry were the apparent trigger for Trump’s steel and aluminum tariffs, and that puzzles some academics who study international trade.
“Agriculture has been largely outside the trade liberalization that has occurred during the past four or five decades,” said University of British Columbia Sauder School of Business professor John Ries.
About 5% of U.S. dairy products can enter Canada relatively tariff-free, but he said the remainder is subject to hefty tariffs.
Many other countries also use high tariffs to protect some agriculture products.
The U.S., for example, levies tariffs of 350% on some tobacco products and 160% on shelled peanuts, according to the World Trade Organization.
(UBC Sauder School of Business professor John Ries teaches courses on international trade | submitted)
Severe restrictions on sugar imports to the U.S. also help protect the American sugar industry.
“The EU, Japan and other big economies would have serious restrictions on agricultural trade and the same types of systems,” Ries said.
Nonetheless, if Canada follows through with its plan to levy a wide range of tariffs starting in July, the result would be not only job losses in the U.S., but also inflation at home.
U.S. spirit-making company Brown-Forman Corp. (NYSE:BF-B) warned investors June 6 that potential tariffs on exports to Canada and the EU, as well as a new 25% tariff on exports to Mexico, would hurt sales. Its shares fell 6% after that announcement.
If Canada levies a 10% tariff on Brown-Forman’s Jack Daniel’s whiskey, some B.C. consumers might bite the bullet and pay the extra 10%. But Ries said others could opt to buy Manitoba-made Crown Royal rye whisky.
“Consumers can substitute away from U.S. goods.”•
