How the tariff war will hit Canadian consumers’ pocketbooks

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U.S. President Donald Trump made good on his threat to slap 25 per cent tariffs on Canadian and Mexican goods on Tuesday, and Canada quickly retaliated, the first blows in a trade war that is rattling the North American economy. For Canadians, a lengthy tariff battle could have serious financial ramifications, from rising prices to lost jobs to a potential recession — never mind the U.S.’s threat of annexation. The Financial Post looked at the most pressing questions facing Canadian consumers.

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How much more will cars cost?

Economists are almost unanimous in predicting that a tit-for-tat tariff barrage will place upward pressure on prices, with the cost of cars and vehicles among the most significantly affected. That’s because North America has a highly integrated automotive supply chain. Since the 1960s, automakers have been able to ship parts across borders without worrying about tariffs. “That changes today,” Fraser Johnson, a professor of operations management and the Leenders Supply Chain Management Association chair at the University of Western Ontario’s (UWO) Ivey School of Business, said Tuesday. That change, Johnson said, will translate into higher prices. “If you’re going to place a tariff every time it crosses the border — whether that’s on parts or raw materials — that’s going to have a significant impact on the price of components that go into the car” and on end prices for Americans and Canadians, he said. While the exact amount can’t be certain, and will vary depending on the car’s make and model, Flavio Volpe, the president of the Automotive Parts’ Manufacturers Association of Canada, said that the cost of a car in Canada could rise between 10 to 25 per cent depending on country of origin. Similarly, a study by J.D. Power, an industry research firm, predicted that the tariff war could increase the cost of buying a new car by up to $6,000 for Canadian shoppers.

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What food prices are expected to rise?

Canada’s first phase of retaliatory tariffs targets a long list of common grocery items like citrus fruit and orange juice, coffee and tea, and wine and spirits. Ottawa’s second tariff package, to be implemented in three weeks, includes other fruits and vegetables, beef, pork and dairy. “If there’s a load of oranges delivered tomorrow, and it has a 25 per cent increase (from tariffs), the consumer is immediately going to see an increase in price,” said Gary Sands, senior vice-president of the Canadian Federation of Independent Grocers (CFIG), which represents 6,900 independent grocers country-wide. Shoppers may feel the biggest pinch when it comes to fresh produce, seafood and certain meats. “At this time of year, Canada imports a lot of leafy greens and fresh fruits from the States. A lot of our shellfish, salmon, tilapia, comes from the U.S. Chicken, not so much, because many independent grocers buy chicken domestically. But beef and pork prices will change,” Sands said. The variety of items on grocery shelves could also “be leaner than usual” as grocers shift their buying over the next few weeks, Sands said. “Retailers can’t afford to have things sitting on the shelf, so they are going to be pretty careful with their inventory, especially if consumers shy away from buying American products” whether out of principle or because of higher prices, he said.

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Will there be a recession?

Most economists are predicting that a long-running tariff war will lead to an economic contraction — or close to it —  in Canada.  “If the U.S. tariffs remain in place, Canada will undoubtedly fall into recession,” wrote Stephen Brown, deputy chief North America economist at Capital Economics. Rate cuts and a “sustained period of even weaker GDP growth” are on the horizon, Brown said. BMO Capital Markets’ chief economist Douglas Porter, meanwhile, said tariffs could slow Canada’s real GDP growth to 0.5 per cent in 2025, reflecting “reduced demands for Canadian exports to the U.S., which accounts for one-fifth of GDP.” Supply chain disruptions hindering business activity and consumption, and heightened uncertainty hurting business investment would also have an impact.

How many jobs could be lost?

The trade war could also strike a big blow to Canada’s labour market. Canadian policymakers have warned of severe job losses, with Immigration Minister Marc Miller warning on Monday that up to one million jobs in Canada are at risk. Quebec could lose 160,000 jobs if 25 per cent tariffs remain in place over the long term, provincial premier François Legault said on Tuesday. Ontario premier Doug Ford said earlier in the year that Trump’s tariffs put 500,000 jobs in the province at risk. If tariffs are in place for more than a year, RBC chief economist Frances Donald said in a note that it could result in a two per cent contraction in real GDP “with a peak unemployment rate of more than eight per cent.” Domestic industries that rely on exporting to the U.S. will be the hardest hit and likely to lose the most jobs — the likes of automotive and aerospace factories, steel and aluminum plants, alongside the forestry and lumber sector — with Quebec, Ontario, and the Maritime provinces the most exposed.  The Canadian branch of the United Steelworkers union, which represents 225,000 members in the country, has estimated that up to 100,000 jobs in the steel and aluminum sector could be affected, with 30,000 jobs impacted in the near-term. Canada’s auto sector, which is the country’s second-largest export industry — 93 per cent of exports are shipped to the U.S. — could feel a particularly brutal sting with Trump set to impose an additional 25 per cent on steel and aluminum imports next week, bringing the total levy to 50 per cent. The auto industry provides 125,000 direct jobs in Canada. But, as RBC’s Donald wrote, the economic pain resulting from tariffs depends on “how long they — and retaliatory measures — remain in place.”

• Email: ylau@postmedia.com

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