As U.S. President Donald Trump holds firm on the threat to apply a 25% tax on Canadian goods by Feb. 1, concerns are growing around what it all means for the economy — with BMO economist Doug Porter calling the threat “an existential risk” to Canada in a note on Friday.
- In the past 12 months, U.S. imports from Canada — including oil, cars, and lumber — totalled $410 billion, none of which the U.S. apparently needs, according to Trump.
Big picture: As analysts rush to estimate the impact — 2 million jobs here, a loss of 3% GDP there — an RBC report published by Frances Donald and Nathan Janzen this week explained the reality is “tricker and messier” than can be summarized into single-figure “hits.”
- The report suggests a U.S. tariff would flow through the economy in stages and could actually boost growth until coming into effect, as firms stock up on Canadian goods.
- Once in effect, sectors with integrated U.S. supply chains. (i.e. manufacturing) would hurt more than those that can shift exports to new markets (i.e. natural resources).
So, what to do? Canadian leaders have yet to form a coherent plan to retaliate against tariff threats, but in the meantime, all eyes are on the Bank of Canada as it assesses the impact of tariffs (which increase costs and weaken growth) in its rate decision on Wednesday.—SB