A sweeping economic upheaval is upon Canada and Mexico as President Donald Trump’s monumental trade tariffs herald a downturn that hasn’t been witnessed for close to a century. The imposing 25% tariffs on imports from both nations, with lesser 10% duties on energy and essential minerals, threatens to dismantle years of North American economic collaboration. Economists warn that this move, targeting continental supply chains, is set to destabilise growth, employment, and profits across the region, reigniting inflation fears.
The ramifications of these tariffs will largely hinge on their duration and the retaliation strategies from Canada and Mexico. In response to the tariffs, Canada has initiated countertariffs on US goods worth $30 billion, projected to rise to $155 billion shortly thereafter. Without swift relief from the U.S., predictions suggest Canada may slide into a recession. Douglas Porter, chief economist at Bank of Montreal, emphasized the magnitude of this shock, comparing it to previous economic crises.
Predictions from the Bank of Canada forecast an unsettling picture: an estimated 8.5% fall in exports within the year, business investment dipping by nearly 12%, and consumer spending contracting by over 2% by 2027. With these shifts, Canada’s GDP could witness a staggering 3% drop over two years, significantly undermining growth and entrenching economic weakness, as noted by Bank of Canada Governor Tiff Macklem.
Even before tariffs took effect, uncertainty plagued Canadian businesses, prompting over half of the surveyed companies to scale back production or lay off workers. A third expressed looming significant losses if the tariff conflict persists beyond a year. The impactful nature of these tariffs will specifically resonate in Ontario’s auto industry and Quebec’s metal exports, while the energy sector faces a less severe 10% tariff.
The implications of these tariffs extend into complex economic dilemmas for policymakers, where the balance shifts between stimulating growth and controlling inflation. It’s anticipated that the Bank of Canada may opt to prioritise economic growth over inflation management, aligning expectations with potential interest rate cuts this year. Fiscal stimulus may become necessary in the wake of the unfolding crisis, with commitments from both Ottawa and local governments to assist affected businesses.
Despite the United States’ lesser reliance on trade compared to Canada and Mexico, the ongoing trade war poses consequential threats to its economy too, according to Mark Zandi of Moody’s. He noted widespread inflation, increasing uncertainty, and stock market declines as immediate repercussions. The U.S. auto sector could face profound challenges, with industry leaders warning about the increase in vehicle production costs due to tariffs.
Gary Hufbauer from the Peterson Institute warned of a spike in U.S. inflation as a result of the tariffs, which could compel the Federal Reserve into a precarious situation of managing both inflation and economic slowdown. The sentiment echoes the rising cost burden on American households from the trade conflict, which a February analysis estimated could exceed $1,200 annually.
Consumers can expect to see gasoline prices rise as a direct consequence of the tariffs, especially in northeastern states where increases of 20 to 40 US cents per gallon are anticipated. While some regions may benefit from discounted Canadian oil to encourage refining, the overall trend indicates a looming price hike. Moreover, delays in affecting prices mean that consumers might not see these changes immediately.
President Trump’s recent tariffs on Canada and Mexico signal a dramatic economic downturn not seen in nearly a century. This trade war threatens to dismantle North American economic ties, with dire predictions for exports, business investments, and consumer spending in Canada. The tariffs are set to ripple through various sectors, affecting jobs and inflation, as both countries prepare for possible retaliatory measures.
In the unfolding narrative of the U.S.-led trade war, Canada and Mexico find themselves in a precarious economic landscape marked by significant tariffs. The anticipated downturn could lead to a recession in Canada, as both nations grapple with the fallout of trade disruptions. Policymakers face challenging decisions in responding to external shocks while attempting to stabilise their economies, with rising costs and falling exports posing serious threats for years to come.
Original Source: www.theglobeandmail.com
