Cargo is unloaded in Savannah, Ga., on Oct. 4, after longshoremen on the East and Gulf Coasts suspended their strike.ADAM KUEHL/The New York Times News Service
Donald Trump loves to talk about how much he loves tariffs. Does he ever.
He’s promised a tariff on all imports into the United States, and his election platform says that he will “support baseline Tariffs on Foreign-made goods,” so that “as Tariffs on Foreign Producers go up, Taxes on American Workers, Families, and Businesses can come down.”
Mr. Trump has said this universal tax on imports would be set at 10 per cent, though at times he’s suggested it might be 20 per cent, or higher.
He’s also talked about a 60-per-cent (or higher) tariff on all goods from China.
What would be the impact of these two protectionist measures on Canada?
Before answering that, it’s important to remember who we’re dealing with here. Mr. Trump says a lot of stuff, and a lot of his stuff is just so much, you know, stuff. This is the guy who called the North American free-trade agreement “the worst trade deal maybe ever signed anywhere,” while calling its nearly indistinguishable replacement, the United States-Mexico-Canada Agreement “the best and most important trade deal ever made.”
It’s also unknown whether a 10-per-cent (or higher!) tariff on all imports from all countries is Mr. Trump’s goal, or whether threatening it would be a negotiating technique to secure other trade concessions.
The only thing that’s clear is that a tariff on Canadian exports to the U.S. would be bad for Canada. Several economists have tried to estimate the impact and, no surprise, that’s the consensus.
University of Calgary economist Trevor Tombe recently modelled a 10-per-cent Trump tariff and concluded it would result in a 0.88-per-cent reduction in Canadian incomes, and a 0.53-per-cent reduction in American incomes. If Canada and the rest of the world retaliated in kind, Canadian incomes would fall by 1.51 per cent, and U.S. incomes by 0.95 per cent.
Marc Ercolao, an economist at TD, believes that a 10-per-cent U.S. tariff, plus Canadian retaliation, would deliver a hit to Canada’s gross domestic product of 2.4 per cent in the first two years. Oxford Economics pegs the total cost of a Trump presidency as a 0.9-per-cent drag on Canadian GDP by 2029.
The economists at CIBC write that a general U.S. tariff “would incent companies to seek US locations rather than those in Canada for products destined for the American market, or could require the offset from a cheaper Canadian dollar or lower wages on this side of the border.”
They point to Mr. Trump’s steel tariffs in 2018, whose impact on Canada was worse than most people realize. Exports to the U.S. of Canadian manufactured metals dropped 35 per cent, reducing Canadian GDP by 0.5 per cent.
Three economists with the Peterson Institute of International Economics recently modelled “The International Economic Implications of a Second Trump Presidency.” They estimate that a 10-per-cent U.S. tariff on all imports, and the inevitable global retaliation, would reduce U.S. GDP by US$721-billion by 2028, and Canadian GDP by US$60-billion.
However, their model says Canada would benefit if, instead of starting a trade war with the whole planet, the U.S. aimed only at China. They find that a 60-per-cent U.S. tariff on Chinese goods, with Beijing retaliating in kind, would deliver a small, US$9-billion boost to Canada’s GDP.
Mr. Trump’s previous moves to limit trade with China, largely continued and expanded under President Joe Biden, have already pushed some manufacturers to shift production from China. According to CIBC, that has led to a rise in U.S. imports from Vietnam and Mexico, and even a modest increase in manufactured imports from Canada.
Could Canada be a net beneficiary of a U.S.-China trade war? It’s possible. But not likely.
I asked Marcus Noland, one of the authors of the Peterson report, about the conclusion that Canada would come out a modest winner of a superpower trade battle. He told me his model assumes that Canada remains neutral, meaning no new Canadian trade restrictions on China, no new Chinese trade barriers against Canada, and Washington fine with that.
But in October, Canada aligned itself with our largest trading partner by imposing a 100-per-cent tariff on Chinese electric vehicles and a 25-per-cent tariff on Chinese steel and aluminum. It is hard to see how Ottawa could have done otherwise.
The best hope for Canada is that Kamala Harris wins the election. Her administration would be protectionist but measured, with a focus on the strategic adversary, China. The U.S. will find many potential allies in that fight.
The second-best hope is that, in the event Mr. Trump wins, he also makes China the main target, and his promised universal tariff turns out to not be universal, but a threat to brandish against countries with large trade surpluses.
That would leave Canada far down the list of Trump targets, or not a target at all. A 10-per-cent tax on Canadian exports to the U.S. would make our most important export – oil – more expensive for Americans. A tariff to raise prices at the pump? That’s the last thing Mr. Trump wants.