Tariffs expected to raise product prices on both sides

Consumers on both sides of the border could be caught in the middle of a trade war as businesses slap them with higher prices to offset the impact of billions of dollars worth of reciprocal tariffs announced by the United States and Canadian governments.

The federal government announced Thursday afternoon that it would impose some $16.6 billion in dollar-fordollar counter-tariffs on a wide variety of United States goods — everything from whiskey to sleeping bags to quiche — that will take effect on Canada Day.

“This is the strongest trade action Canada has taken in the post-war era,” Foreign Affairs Minister Chrystia Freeland told a news conference Thursday.

The swift Canadian response came hours after U.S. Commerce Secretary Wilbur Ross said exemptions for Canada, Mexico and Europe from import duties of 25 per cent on steel and 10 per cent on aluminum will expire Friday, as scheduled.

The tariffs from both countries are not conducive to a good trade environment, Bank of Canada deputy governor Sylvain Leduc told reporters after a speech in Quebec City.

“This is a risk that we’ve highlighted in our monetary policy report in the past, the risk of protectionism and the fear of the tit-for-tat responses,” he said.

But figuring out who is worse off could be complicated given the level of integration between the two economies.

Canada and the U.S. are closely integrated trading partners and Thursday’s moves could cripple industries, including the auto sector, where supply chains are interconnected and goods pass back and forth across the border several times before they are finished.

“Because of the deep integration of manufacturing supply chains, the tariffs will drive prices up for all consumers,” said Dennis Darby, president of the Canadian Manufacturers & Exporters.

Steel and aluminum, for instance, are used in so many industries that tariffs will boost input costs in sectors from food and beverage manufacturing to aerospace, and producers will likely try to pass along the tariffs to consumers in the form of higher prices.

The United States used 5.5 million tonnes of aluminum last year, largely imported from Canada, but only produced about 700,000 tonnes domestically.

“Construction, autos and machinery manufacturing comprise 80 per cent of total domestic steel consumption and their input costs would rise. With costs going up, jobs and prices would take a hit,” said Michael Burt, the Conference Board of Canada’s executive director of industrial economic trends.

A 10 per cent tariff that Canada imposed on many U.S.-made retail goods will be levied at the wholesale level, but over time for products with no other substitutes, such as orange juice, this cost will trickle down to consumers, said Karl Littler, vice-president of public affairs for the Retail Council of Canada.

“Retail margins are narrow. So at some point it would have an impact on price,” he said.

“Most of this stuff in this space, clearly, is substitutable.... Inevitably, if you’re absolutely bound and determined to get that particular bourbon, from that particular distillery in Kentucky, then there will be a price impact.”

Sven Anders, an associate professor in food marketing and supply chains at the University of Alberta, said he expects most of the companies producing food on the tariff list would pass along the costs to shoppers because retailers have a lot of power in setting prices and shoppers don’t often push back.

“Consumers are not in a bargaining position in the retail market,” he said. “Consumers are known to be a very heterogeneous group and they don’t really act as a powerful body in saying we are not going to pay these tariffs.”