THUNDER BAY — Manufacturing and the resource sector are two areas where a tariff war between Canada and the United States would be most strongly felt, says a Lakehead University economist.
Livio Di Matteo, a professor of economics at LU, said that Canada will likely feel the brunt, however, given how much of our exports go to the United States, compared to how much the U.S. trades with Canada.
“The tariffs, if they're imposed, are certainly not going to be good for the economy,” Di Matteo said. “Across the board, 25 per cent tariffs by the United States, of course, will hit our export sector, and then, of course, if we retaliate with 25 per cent tariffs, that will also affect us too.”
U.S. President Donald Trump has announced he will slap an additional 25 per cent tariff on imports from Canada, aside from energy, which will be subject to an additional 10 per cent tariff. Effectively, that means there will be an added fee on Canadian products crossing into the United States. Retaliatory tariffs by Canada would mean that products imported from the U.S. into Canada would also be hit with an added fee.
“I mean, basically, if both sets of tariffs come in, our export sector will be hit and so that will cause a drop in GDP, and employment losses,” Di Matteo said. “At the same time, if we then retaliate with tariffs on American imports, that will raise the cost to our consumers at the same time that there are employment losses and a fall in GDP.”
“It’s certainly not a win-win situation — it's not a situation that you really want to get into.”
Over the past several decades, both Canada and the United States have moved toward having much more integrated economies with the gradual reduction of tariffs since the mid-20th century, Di Matteo said, which makes this looming trade war even more disruptive.
“We have a situation where the current American president is essentially — if the tariffs do come to pass — is rupturing an entire supply chain and integrated economies,” he said. “That's going to cost them also, but we will feel it more given we are more trade dependent than the Americans are.”
Canadian Finance Minister Dominic LeBlanc has stated that if the U.S. tariffs go into place, Canada will strike back with 25 per cent tariffs on $155 billion worth of imported U.S. products. Provincial premiers have also threatened actions, such as Ontario Premier Doug Ford saying the LCBO will pull American liquor off the shelves.
As for whether Canada should retaliate in kind with tariffs on American imports, Di Matteo said it’s likely unavoidable from a political standpoint, likening it to standing up to a bully on the playground, even if they’re much larger than you.
“There's economics and there's politics,” he said. “Economically, if the Americans impose tariffs, you actually compound the damage by responding with tariffs.”
“Politically it will be difficult to not respond in some way,” Di Matteo continued. “Ideally your response should be something that harms them and minimizes the harm to yourself.”
