With Donald Trump set to take the oath of office Monday, the North American economy stands on the verge of a trade war.
But will the U.S. president-elect actually follow through on repeated threats of across-the-board, 25 per cent tariffs on Canadian imports on Day One?
The answer, say business groups, trade experts and economists, is probably not.
He will, however, do something, they say, and it will almost certainly cause economic pain — on both sides of the border.
The damage from broad-based tariffs would be felt in both countries, said Flavio Volpe, president of the Automotive Parts Manufacturers Association.
“I think he’ll do something Day One, but it won’t be across the board, 25 per cent,” said Volpe, noting that automotive components and vehicles cross the border in both directions several times before winding up as a finished product.
Canadian exports of cars, other vehicles and automotive parts to the U.S. add up to almost $75 billion a year.
Trump’s bluster is more likely a negotiating tactic, Volpe said, rather than a precise plan.
“He’ll make a lot of noise,” Volpe said. “He’ll say if it were up to him, he’d do it on Day One.”
Trump is unlikely to hit the $166 billion in Canadian petroleum products coming into the U.S. each year, Volpe predicted.
“Someone will come and get a carveout for oil and gas,” said Volpe.
Pedro Antunes, chief economist at the Conference Board of Canada, agreed, but sounded a note of caution.
“I just don’t see 25 per cent across the board, especially on oil and gas. But I’ve been wrong about him before,” said Antunes. “Whether it’s 25 per cent on some selected things, or a lower tariff across the board, I think both of those things are possible.”
The Canadian Association of Petroleum Producers wouldn’t say what it’s expecting from Trump, but made clear in a written statement it’s opposed to the idea of its products facing U.S. tariffs — or American oil and gas facing Canadian retaliation.
“CAPP and its member companies would strongly oppose any form of export tax applied to Canadian oil and natural gas being sold in the United States. A counter measure such as placing a tax on exports to the United States would mimic and amplify the negative effects of a U.S. import tariff,” CAPP president Lisa Baiton said in an emailed statement.
Hitting Canadian energy imports isn’t a likely scenario, said John Boscariol, head of international trade and investment law at Toronto’s McCarthy Tétrault.
“I find it hard to believe tariffs are going to include oil and gas,” said Boscariol. “That’s a stupid thing to do, with respect to your own economy.”
Still, said Boscariol, make no mistake — some kind of tariffs are coming. Trump’s threats have been so public, and so persistent, that backing off entirely isn’t a realistic hope.
“For him to save face now, having made this threat, I think it’s going to have to be a significant, painful hit for Canada. I don’t think it will just be a handful of products. I think it will be a number of products,” said Boscariol.
While there’s a chance that Trump could still order 25 per cent tariffs across the board, it’s an unlikely scenario, said international trade expert Andreas Schotter.
“I’m not in his head,” said Schotter, a professor at Western’s Ivey Business School. “But I think there’s a 10 to 20 per cent chance of that, at most.”
The biggest reason it’s unlikely? Stock markets would crash.
“It would tank the stock market, immediately, and I don’t think he wants to do that,” said Schotter, adding “it would hammer the economy on both sides of the border, and there’d be huge supply chain problems almost immediately.”
“The only nuance here is going to be: how expansive versus how targeted are they, and on what timeline?” said Matthew Holmes, the Chamber’s chief of public policy. “Either way, we’re going to see tariffs.”
Still, said Boscariol, Trump’s announcement on social media this week that he’s planning to create a new “External Revenue Service” makes clear he’s trying to put tariff collection on an equal footing with income taxes collected by the Internal Revenue Service.
“For him, it’s more attractive to collect taxes via import duties, which he can argue are punishing their trading partners, as opposed to income taxes, which he’s against,” said Boscariol.
But, said Boscariol, the populist appeal of tariffs is based on a fundamental misunderstanding, said Boscariol.
“It’s based on this completely false notion that import duties somehow aren’t a tax on consumers in the country,” said Boscariol. “The fact is, if you impose an import duty, that gets flowed through to the consumers of products, whether it’s directly, if it’s a finished product, or indirectly if it’s a component going into the manufacture of something in the United States.”
