Auto tariffs will put long-term chill on economy

TORONTO — A new analysis by TD Economics said that if the United States goes ahead with tariffs on auto imports it could cut Canadian economic growth by half a percentage point and threaten up to one in five Ontario manufacturing jobs.

The report by TD senior economist Brian DePratto said that if the U.S. imposes tariffs of a similar magnitude to the ones announced on aluminum and steel, it would not only stagnate the economy but also frighten away future business investment.

DePratto said the move, which would affect $74 billion in exports, could create permanent “scarring” of the investment climate that reduces Canada’s longterm economic capacity.

He said the immediate tariff impact would mean a 0.4 per cent cut to economic output, but the long-term hit to confidence would have a peak impact on economic output of 1.2 per cent, or about $25 billion in real terms, and permanently leave output 0.2 per cent below business as usual.

DePratto said he still expects that NAFTA disputes will eventually be resolved, but the potential impact of tariffs underscores the importance of the ongoing negotiations.

Scotiabank said in a weekend report that if the tariff dispute deteriorates into an all-out global trade war, it could push North America’s economies into recession in 2020, including a 1.8 per cent cut to Canada’s GDP.