Tariff talk – and consequences
- June 14, 2018
U.S. President Trump’s belligerent talk – and action – on tariffs against his country’s North American neighbours has observers warning about the potential economic fallout.
Given the close integration of the Canadian, U.S. and Mexican economies, it’s inevitable that any new tariffs will affect all three. Canada is the biggest exporter of steel to the U.S. and Mexico is at number three. Canadian exporters of steel and aluminum will be hurt by the new tariffs – 25 and 10 per cent, respectively – but so will U.S. manufacturers that depend on those imports. Some consequences will take years to play out, but some very major ones will take old immediately, most notably the price of raw steel and aluminum. The automotive and aerospace sectors will be especially hard hit, given their highly integrated North American supply chains. As one example, 60 per cent of the parts in the cars that Canada manufactures and then ships to the U.S. are made south of the border. And Canada ships the vast majority of cars manufactured here to the U.S.
While U.S. automakers have remained relatively quiet about the pain they could be facing if the threatened 25 per cent tariff on cars entering from Canada comes into effect, they’re getting their message across to the U.S. administration behind the scenes.
Canadian observers have also sounded the alarm. Speaking to the London Free Press, auto analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants said “[p]utting a 25 per cent tariff on vehicles is a nightmare scenario... It’s the end of the world as we know it. We have a U.S. administration determined to screw up the North American auto industry.”
Conference Board of Canada economist Alan Arcand said that just the threat of a tariff is an issue for Canada’s economy. But, he added hopefully, “We are taking it seriously, but our assumption now is that unlike steel and aluminum, this will not be implemented.”