The trade war sparked by U.S. President Donald Trump’s tariffs on Canadian imports could shave tens of billions of dollars off the size of the Canadian economy, cost hundreds of thousands of Canadians their jobs, and could easily push this country into a recession while also pushing up inflation, economists warn.
The biggest single question is how long the tariffs — slated to take effect Tuesday — will stay in force, said Pedro Antunes, chief economist at the Conference Board of Canada.
“If this sticks, we’re talking hundreds of thousands of jobs,” said Antunes, noting that the automotive industry will likely be among the first to feel the effects because of how highly integrated it is on both sides of the border.
“I think we’re going to see an abrupt halt in auto production, but this is going to put a halt to a lot of our manufacturing sectors,” said Antunes.
On Saturday, Trump signed an executive order imposing 25 per cent tariffs on all imports from Canada and Mexico, with the exception of Canadian oil and gas, which is getting hit with a 10 per tariff. Canada has vowed to retaliate, with 25 per cent tariffs on a wide range of American imports. Monday, Trump announced he’ll be pausing the tariffs on Mexico.
In a report on the potential impact of the tariffs, RBC economists Frances Donald and Nathan Janzen said the tariffs will be devastating in the short to medium term.
“If sustained, our initial analysis suggests that tariffs of this size (based on many assumptions) could wipe out Canadian growth for up to three years, with the largest impacts in the first and second years,” Donald and Janzen wrote. The trade war could see Canada’s GDP shrink by up to 4.2 percentage points compared with what it would otherwise be, they added.
“By our calculations, such reductions could push Canadian unemployment rates up by between two to three percentage points,” they added. “While the precise impact depend on a variety of assumptions — including monetary and fiscal policy responses — this is a significant negative shock to Canadian growth and poses a serious risks of unemployment rate increases.
This is a developing story.
