Canada response to the U.S. tariffs on Canadian goods
Associations representing everyone from farmers and miners to homebuilders and restaurant owners spent Sunday speaking out against the tariffs—25% on Canadian goods and 10% on energy—which are both slated to take effect Tuesday, when Canada’s own package of retaliatory tariffs starts to kick in. Canada’s retaliation, announced Saturday, will begin by targeting $30 billion in U.S goods on Tuesday, followed by $125 billion in additional duties on American products in 21 days.
The economic impact of tariffs
“The (U.S.’s) move is reckless and will cause economic hardship in both the U.S. and Canada,” Richard Lyall, president of the Residential Construction Council of Ontario (RESCON), said in a statement Sunday. “Our countries and supply chains are intertwined and dependent on each other, so nobody wins in a tariff war.”
His feelings were echoed from coast to coast as business groups reckoned with the reality that the forthcoming tariffs are so broad they could transform nearly every aspect of the Canadian lifestyle. Business analysts warned the duties will likely depress the Canadian dollar, push up inflation and require an aggressive series of interest rate cuts as the country works to make it cheaper to borrow cash to keep the economy ticking.
“Trump’s tariff hammer will come down hard on Canada’s economy,” Douglas Porter, a chief economist with BMO Capital Markets, wrote in a Sunday note. “If the announced tariffs remain in place for one year, the economy would face the risk of a modest recession. A couple quarters of contraction are well within the realm of possibility.”
He predicted the Bank of Canada will carry out a quarter-point interest rate drop with each announcement, bringing the benchmark rate to 1.50% in October—lower than previous forecasts.
That forecast was based on BMO calculations showing the tariffs will reduce real GDP growth to roughly zero in 2025, reflecting decreased demand for Canadian exports to the U.S.
Meanwhile, Tu Nguyen, an economist with RSM Canada, forecast the tariffs would take inflation from its current two per cent level to a 2.7% headline number as businesses pass on the cost of increased duties to customers. As for the loonie, she believes it will slide some more, bringing it even further below its current level, which hearkens back to the early days of the COVID-19 pandemic. “The depreciation of the Canadian dollar could mitigate the prices of exports for U.S. importers, but this exacerbates the pain for Canadian businesses and consumers,” she told investors in a note.
Housing affordability at risk
The economists and several business associations both seemed to agree the promised tariffs are much more significant than the 25% duty on Canadian steel and 10% on aluminum the Trump administration applied in March 2018.
