A new report from the Canadian Chamber of Commerce sent a stark warning ahead of the U.S. presidential election, saying protectionist policies like the tariffs proposed by Donald Trump could damage economies on both sides of the border.
The report, prepared by Trevor Tombe, a professor of economics at the University of Calgary, said that while most Canadians recognize the importance of trade with the United States, Americans do not have the same understanding of the complexity of the two countries’ engagement, especially at a time of geopolitical uncertainty.
Canadian officials and business groups are meeting with their Democratic and Republican counterparts across the United States to ensure Canada is prepared for any outcome of the November election.
Both presidential candidates campaigned on protectionist policies that could create uncertainty for Canadian trade. Whoever takes over the White House will be in charge during the review of the agreement between Canada, the United States and Mexico in 2026.
“Both parties have moved in protectionist directions for some time,” Tombe said.
While Vice President Kamala Harris is expected to remain close to the Biden administration’s course on relations with Canada, last month she highlighted her opposition to replacing the North American Free Trade Agreement (NAFTA) negotiated under the Trump administration, saying it allowed major auto companies Outsourcing American Jobs.
Meanwhile, Trump has signaled his plans to impose blanket 10% tariffs on imports if he gets a second term.
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This proposal has raised concern on both sides of the border.
Kirsten Hillman, Canada’s ambassador to the United States, tried to allay concerns by saying that Washington would likely not find it possible to apply tariffs in Canada’s case.
Tombe said that if Trump’s tariffs are enacted, they will harm economies on both sides of the international border.
The report, which used models to estimate the impact of the tariffs if they were made permanent, indicated that the move would shrink the size of the Canadian economy by between 0.9 and one per cent, resulting in economic costs of about $30 billion annually.
The report estimates that the United States will see about $125 billion annually in economic costs.
Things will get worse if other countries respond with tariff walls of their own. In this case, Canadian income would decline by 1.5 per cent and productivity by 1.6 per cent, the report said.
“This means a loss of $45 billion in economic activity in Canada,” Tombe said. “Roughly speaking, this is about half the size of a normal recession. This is a very big hit.”
This is not the first time such a policy has been introduced in the United States
Tombe pointed to the “Nixon shock” of 1971, when the United States imposed a temporary 10 percent additional tariff on imports, including from Canada.
Then, as now, Canada sought an exemption, citing its unique and complementary role as a reliable trading partner.
Nixon’s tariff lasted only four months before being rolled back, but research found that it led to a 2.6 percent decline in total imports into the United States from Canada.
Tombe said that the impact is likely to be greater today, because the nature of trade between the two countries has become more complex and interconnected.
Some experts have warned that the relationship between the two countries has shifted from strategic to transactional, with Canada becoming less important compared to other places in the world.
The new report said that the economic relations between Canada and the United States are enormous, deeply interconnected and mutually beneficial.
They are made of a “complex web of supply chains across many sectors,” with U.S. companies using Canadian exports as inputs to produce other goods, the report said.
“Canada-US trade has ripple effects throughout the US economy, with Canada serving as an important and reliable supplier of inputs,” the report said.
There are also cross-border investments, as well as hard-to-trace exports in services such as tourism or technology.
While the entire US economy is larger and generally less dependent on international trade flows, Canada is the top export destination for 34 countries.
In Michigan, trade with Canada is estimated at 14 percent of the state’s economy. It is 10.2 percent in Illinois and 6.7 percent in Wisconsin.
Many Midwestern states are key election battlegrounds and trade policies affecting Canada will have a disproportionate impact on its businesses and citizens.
“The consequences of obstruction are quite similar on both sides of the border,” Tumbi said.
& Edition 2024 The Canadian Press
