Don’t retaliate with tariffs on American-made products. Rather, look at tax reform, encourage alternative trade partners (especially internally) and consider financial relief for those caught up in the mess of it all.
That’s the advice Stephen Tapp, the Canadian Chamber of Commerce’s chief economist, delivered to local chamber members during a breakfast event on Thursday, commenting on threatened new tariffs from newly returned American president Donald Trump.
“Trump is bringing a lot of concern, a lot of worry,” he told local business people gathered at the Italian Canadian Club. “I do think we’ll get through this but it will be a challenging time.”
Trump has publicly mused about hitting Canadian-made goods crossing into the US with a 25 per cent tariff, possibly as soon as Feb. 1. What’s not clear, Tapp said, is how serious Trump is about doing that, what exemptions would be made and, if applied, how long will the tariffs be in place.
“If tariffs come in at 25 per cent (and last) forever, we’re screwed,” Tapp said, noting 75 per cent of Canadian exports are to the US, with 2.3 million associated jobs on this side of the border. “There will be job losses, there will be lost companies and businesses.”
However, he pointed out, during Trump’s first term as president he called for scrapping the North American Free Trade Agreement, claiming it to be unfair to Americans, then signed on for a deal that was 97 per cent the same.
Though many politicians, including Prime Minister Justin Trudeau and Premier Doug Ford, have called for retaliatory tariffs on American goods if Trump's threat is implemented, Tapp believes that would be a mistake.
“Retaliating is worse for Canada,” he said, noting the cost of many items Canadians buy would rise as a result, in the midst of an existing affordability crisis. “It’s self-defeating and it’s stupid.”
Tapp promptly followed those comments up by explaining the point of retaliatory tariffs would be to show American consumers the hardship tariffs can cause in hopes they advocate on their side for the fees to be lifted.
“It’s not entirely dumb if it works,” he said.
Instead, he suggested the Canada and Ontario governments look at tax reforms and other trade opportunities, including with Asia and Europe, but especially between provinces. In addition to that, some businesses will likely need direct government support in order to keep going.
“I don’t know what the government will do, but it’ll have to do something,” Tapp said. “If the tariff comes into place … it will be recessionary (for Canada).”
With energy being one of Canada’s major exports to the US, Trump’s tariffs won’t go unnoticed by consumers there.
“It’s going to be bad for everybody,” Tapp said. “Make no mistake, people at the pump in the US will pay more.”
Much of the Canada-US trade happening now is internal for companies, he added, be that between branches, subsidiaries or other companies under the same parent organization but on opposite sides of the border.
Among Canadian cities with a population of 100,000 or more, Tapp said Guelph is the fourth-highest exporter, with an average value of $33,705 annually per person.
“He likes to play with us for some reason,” Tapp said of Trump’s musings on Canada, including the threatened trade war. “This isn’t the main event, he wants to fight China. This is him just playing around with somebody.”