Industry players wary of tariff war, in spite of potential benefits
Canada’s tariffs on imported U.S. goods – everything from strawberry jam to sleeping bags – could steer consumers to seek out cheaper, made-in-Canada alternatives, but domestic industry players are fearful that input costs will rise and American politicians could retaliate in kind.
Gerhard Latka, president of Canadian jam maker Crofter’s Food Ltd., said while the company does stand to benefit, he is concerned that their industry is now in the crosshairs of U.S. President Donald Trump.
“We’ve poked the bear … There’s a silver lining, but it is far outweighed by the risk,” he said from Parry Sound, Ont., noting that his company exports as much as 80 per cent of its product south of the border.
Canadian businesses are digesting the industry ramifications of the cross-border tariff war that erupted on Thursday, with Trump announcing the U.S. will slap tariffs on Canadian steel and aluminum and Prime Minister Justin Trudeau firing back with $16.6-billion worth of “dollar-for-dollar” countermeasures on goods ranging from playing cards to maple syrup to yogurt.
The 10 per cent tariffs or similar measures on selected U.S. imports are set to take effect July 1 after an industry consultation period. Part of the 10 per cent levy at the wholesale level may eventually be passed on to Canadian consumers in the retail price, if the tariff war persists.
However, readily available Canadian substitutes for these U.S. goods could get a boost as result, said Joanne McNeish, an associate professor at the Ted Rogers School of Management at Ryerson University. On top of being potentially cheaper than U.S. goods subject to the tariffs, some Canadian consumers or businesses may shop more patriotically in protest, she said.
“People will start to look at the tags more closely,” McNeish said.
While there may be Canadian-made alternatives, these tariffs will “inflict pain” on domestic firms as some inputs or unique products cannot easily be switched or replaced, said Dan Kelly, the chief executive of the Canadian Federation of Independent Business.
“That is little comfort for firms that have supply chains where these products are built in,” he said.
Orange juice is one example of a U.S. good that can’t be substituted easily at home.
Foreign Affairs Minister Chrystia Freeland said Thursday that the products subject to tariffs were carefully chosen to limit the impact on Canadian producers and consumers.
There could be opportunities for a bump in sales for Canadian substitutes for these U.S. products, said Mike Von Massow, associate professor in the food, agricultural and resource economics department at the University of Guelph.
However, the price advantage for domestic goods will be less than 10 per cent, as the surtax is unlikely to trickle down to the retail price of these American products in full, he added.
The potential for a tit-for-tat measure from the U.S. is indeed a risk in any trade war, he said, but Trump is likely to target bigger industries with more “leverage.”
Still, some American lawmakers have the same fear about its trade war with China. On Friday, for example, Maine Congressional members urged Trump not to put a tariff on seafood because they are worried the Chinese would retaliate with a similar measure and hurt the state’s lobster industry, which exports millions of dollars worth of lobster to the Asian country.
Many of the U.S. products subject to tariffs in Canada appear to be chosen based on political rather than economic impact, said Von Massow.
For example, Massow said, Canada imports just $3 million worth of yogurt from the U.S. annually – most of which is from Wisconsin, the home state of House Speaker Paul Ryan. Another product on the list is whiskey, which comes from Tennessee or Kentucky, the latter of which is the home state of Republican Senate leader Mitch McConnell.
“Putting a levy on something that we import $3 million worth of is not likely to have any impact whatsoever on any Canadian consumers. It’s much more likely to have an impact on someone who might have the phone number of Paul Ryan … An attempt to bring pressure on the White House that way.”