As the U.S. goes head-to-head with China in an unforeseen trade battle that will raise the cost of almost everything south of the border, many Canadians are wondering what it means for their wallets.
While experts worry about the Canadian economy slowing down, and many predict global costs are headed up due to Donald Trump’s tariffs, some argue Canadian prices on electronics, clothing, food, appliances and other consumer products will not immediately skyrocket as a result.
In fact, RBC is currently predicting that inflation at the end of 2025 will remain close to the Bank of Canada’s target of two per cent.
The impact of the trade war on prices in Canada will generally stem from indirect economic forces, as Canada’s retaliatory tariffs on American imports were strategically designed by the federal government to limit the impact on Canadian inflation, says RBC economist Claire Fan.
In the post-Trump tariff world, Canadian consumer prices will depend on how global trade restructures, fluctuations in the Canadian dollar, and whether multinationals choose to pass higher costs onto consumers.
Over the near term, William Huggins, professor of finance and business economics at McMaster University, predicts that the prices of many household goods won’t go up — and could even drop in some product categories.
With the U.S. imposing 145 per cent duties on Chinese goods, that effectively shuts China out of the American consumer market, resulting in a global oversupply of its manufactured products.
“We might see a few prices come down because they’re just going to product dump,” said Huggins.
While there are anti-dumping laws that protect domestic producers from foreign competition, Canadians might benefit from cheaper clothing, furniture and electronics made in China, as these items aren’t produced at a large scale here.
In the long run, however, if China eventually shuts down factories because of a decline in American demand, prices for imported goods might go up again, warned Huggins. Shipping costs may also rise, he said, as Canada will not be able to piggyback on large shipments to the States.
Recent strength in the Canadian dollar will also help reduce inflation in Canada by making imports cheaper. The loonie reached a five-month high last week as the U.S. dollar depreciated. As of Friday afternoon, it was trading at 72 cents (U.S.).
Scotiabank forecasts the Canadian dollar will strengthen: “We’ll see probably a bit more Canadian dollar strength at least in the short run and maybe in the medium term as well,” said Shaun Osborne, chief currency strategist at Scotiabank.
In the current tariff scenario, Osborne expects the global economy will slow, meaning demand will decline, and inflation will be “steady or lower.”
“If we can see that along with a relatively stable Canadian dollar, that should help keep prices contained.”
Whether prices rise or fall will also depend on individual companies’ decisions to pass the higher tariff cost onto the consumer.
“When costs go up, companies can either raise price, they can cut costs elsewhere, or they have to absorb the pressure,” explained Simeon Siegel, analyst at BMO Capital Markets specializing in retail and e-commerce.
“Price hikes will be surgical,” he said, adding that most retailers are afraid of losing business if they bump prices too much. “Companies will not universally raise price, and they should not universally raise price.”
