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Who is really paying the price of the Canada-U.S. trade war · INSIGHT TODAY

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  Speaker 1: Here to bring us some more facts on this trade
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  Speaker 1: war and the impact it could have on people on
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  Speaker 1: both sides of the border, let's bring in Trevor Toome,
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  Speaker 1: a professor of economics at the University of Calgary. Nice
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  Speaker 1: to see you, sir. Thanks for coming on.
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  Speaker 2: Great to be here. Thanks for having me.
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  Speaker 1: So just before these latest 50% tariffs were applied to
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  Speaker 1: Canadian goods, you published an analysis of just how damaging
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  Speaker 1: these new levies could be on the Canadian economy. You
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  Speaker 1: pegged the number at 90,000 jobs potentially affected. Tell me
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  Speaker 1: about that data.
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  Speaker 2: That's right. So a 50% tariff is a very significant rate.
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  Speaker 2: And so those firms that are directly affected by the
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  Speaker 2: tariff are almost surely going to see fewer sales into
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  Speaker 2: the United States as buyers there change behavior, shift into
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  Speaker 2: other suppliers, or just forego purchasing those items entirely. And
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  Speaker 2: so that'll mean over time, less output by those firms
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  Speaker 2: in Canada, less employment directly at those firms, and And
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  Speaker 2: then the costs on Canada's economy then grow from there
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  Speaker 2: because you have suppliers providing inputs and materials and services
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  Speaker 2: to those exporters. And then there's suppliers of those suppliers
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  Speaker 2: and so on. So over time, those costs mount. And so, yeah,
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  Speaker 2: I estimated it would be about 90,000 jobs nationally, although
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  Speaker 2: that does presume the tariffs remain in place for some time.
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  Speaker 2: And so much of what happens to Canada's economy will
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  Speaker 2: depend on how long this lasts.
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  Speaker 1: Canada, of course, is hitting back, as you know, today,
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  Speaker 1: announcing a multi-billion dollar package. Many more American goods coming
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  Speaker 1: into this country will now be hit with Canadian tariffs.
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  Speaker 1: The government calls it dollar for dollar. I think you
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  Speaker 1: might quibble with that characterization of what's been announced today.
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  Speaker 1: But do you think it was the right move? Certainly
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  Speaker 1: many people in this country were clamoring for this sort
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  Speaker 1: of response. But as an economist, maybe you have a
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  Speaker 1: different take on this sort of maneuver.
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  Speaker 2: Well, I will be the first to concede that this
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  Speaker 2: is a really difficult choice for the government, and they're
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  Speaker 2: trading off a lot of competing objectives. Any retaliatory package
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  Speaker 2: needs to be both well targeted in the U.S. to
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  Speaker 2: actually put pressure in politically important regions and states. And
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  Speaker 2: it needs to levy these tariffs on products where we're
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  Speaker 2: actually an important market for the United States. And then finally,
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  Speaker 2: minimize the economic costs in Canada. And balancing all of
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  Speaker 2: these three things is quite difficult. And that's perhaps why
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  Speaker 2: the government didn't fully follow through with dollar-for-dollar retaliation, because
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  Speaker 2: some of the items we're tariffing are at 15%, not 50%.
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  Speaker 2: And I suspect it's because of that balancing issue. the
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  Speaker 2: economic consequences in Canada against the pressures that we see
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  Speaker 2: in the US. But my own analysis also suggests that
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  Speaker 2: If you look at Michigan, for example, it is pretty
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  Speaker 2: significantly exposed to these retaliatory tariffs, equivalent to an economic
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  Speaker 2: hit for them of roughly 0.3% of their GDP, which
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  Speaker 2: might not sound like a lot, but that's almost as
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  Speaker 2: large as what the hit is of the U.S. tariffs
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  Speaker 2: on Canada. And so to the extent that this influences
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  Speaker 2: political dynamics in an important swing state, I guess time
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  Speaker 2: will tell.
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  Speaker 1: Yet it's not just Michigan. Lobster from Maine is also
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  Speaker 1: being tariffed, right? And that's a major problem for that
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  Speaker 1: state because so much of it is processed actually in
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  Speaker 1: Nova Scotia and New Brunswick. I think it's nearly half.
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  Speaker 1: Plastic products, appliances from Ohio, cheese curds and cheese products
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  Speaker 1: from Wisconsin. I mean, do you think they drew up
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  Speaker 1: a good list here? I mean, I know we're just
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  Speaker 1: getting a quick cursory glance at it, but is that
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  Speaker 1: a list that you think could maybe force the hand
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  Speaker 1: of some of the leadership down in the United States,
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  Speaker 1: given We might be hearing some squealing, right, frankly, from
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  Speaker 1: some of the politicians who are grappling with job loss
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  Speaker 1: in their states.
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  Speaker 2: Yeah, it's really difficult to anticipate how the U.S. will respond,
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  Speaker 2: especially given who the leadership is in the United States,
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  Speaker 2: perhaps a uniquely unpredictable figure. And so we'll have to see.
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  Speaker 2: In terms of whether the government got the balance right,
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  Speaker 2: this depends on how much weight we put on all
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  Speaker 2: the different objectives. I think some of the economic disruption
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  Speaker 2: in Canada might be non-trivial from these tariffs because about
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  Speaker 2: three quarters of the items that were targeted were our
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  Speaker 2: supplies or capital goods to businesses in Canada, rather than
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  Speaker 2: consumer goods or food items that don't really have this
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  Speaker 2: cascading effect throughout the Canadian economy. And so the costs
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  Speaker 2: of our retaliation will mount over time. And so hopefully
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  Speaker 2: this is not something that lasts for many months to come.
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  Speaker 1: Do you have an estimate as to what the impact
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  Speaker 1: will be on the Canadian economy now that we have
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  Speaker 1: imposed these tariffs on American goods? I mean, I know
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  Speaker 1: you have that 90,000 jobs figure relating to what the
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  Speaker 1: Americans are doing to our goods. But when you look
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  Speaker 1: at it from the other vantage point, do you have
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  Speaker 1: an estimate, an early estimate as to what could come
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  Speaker 1: about as a result of the government's plans today?
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  Speaker 2: Yeah, that's a very good question. We should be thinking
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  Speaker 2: about the US tariffs on our exports as a hit
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  Speaker 2: that affects output and employment here more than other components
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  Speaker 2: of the economy. And our retaliatory tariffs, the biggest effect
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  Speaker 2: there is going to be on prices that we pay.
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  Speaker 2: And so that certainly affects productivity and may have an
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  Speaker 2: effect on GDP growth going forward. But the bigger effect
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  Speaker 2: is on the prices that we pay for the items
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  Speaker 2: that are facing this tariff that we import from the US.
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  Speaker 2: And my own preliminary estimates there suggest that overall, the
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  Speaker 2: hit on consumer prices overall might be as much as
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  Speaker 2: a little over 1%. The uncertainty there is how much
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  Speaker 2: businesses pass on to consumers when they face these extra costs.
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  Speaker 2: And that's going to depend on how long businesses think
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  Speaker 2: these tariffs are going to remain in place for, which
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  Speaker 2: at this point is really hard to say. But that
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  Speaker 2: gives you a sense of scale about a 1% increase
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  Speaker 2: in consumer prices overall, relative to the 2% rate we'd
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  Speaker 2: like to target. That's a pretty big change.
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  Speaker 1: Obviously, in the past, the government has tried to put
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  Speaker 1: products on this list that are kind of easily replicatable,
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  Speaker 1: I guess is the word I'm looking for, in this country,
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  Speaker 1: like things that we already produce. So we can just
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  Speaker 1: displace kind of American imports. We might be able to
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  Speaker 1: just turn to domestic sources or maybe look to markets elsewhere.
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  Speaker 1: Having looked at what the government has put on its
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  Speaker 1: list of goods that are now facing these higher U.S. tariffs,
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  Speaker 1: do you think that that's possible? Are there Canadian companies involved?
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  Speaker 1: that are able to come up with some of these products?
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  Speaker 1: Are there other foreign options that are easily accessible?
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  Speaker 2: Well, once you drill down into products that are easily substitutable,
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  Speaker 2: the word you're looking for, with other sources, other countries
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  Speaker 2: or domestic suppliers, as well as being politically well-targeted in
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  Speaker 2: the United States, where Canada is also a major export
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  Speaker 2: market for those producers, you're not left with much. If
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  Speaker 2: you were to restrict yourself to just swing state items
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  Speaker 2: where Canada is a majority of U.S. exports and a
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  Speaker 2: minority of our imports, so easy for us to switch
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  Speaker 2: into other things, you're you'd be left with a package
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  Speaker 2: that's roughly, I reckon, about one tenth the size of
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  Speaker 2: what the government was looking for. So this is the
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  Speaker 2: challenge for small countries. And the prime minister alluded to
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  Speaker 2: this earlier this week as well. It's difficult to move
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  Speaker 2: the needle economically in an economy the size of the U.S.
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  Speaker 2: They're a $ 32 trillion economy. And so if we want
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  Speaker 2: to have an economic impact there, then we'll be hitting
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  Speaker 2: items that have economic disruption here, things that are hard
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  Speaker 2: to substitute away from.
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  Speaker 1: Yeah, is there anything in particular that looks like, ooh,
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  Speaker 1: that could be particularly damaging to the Canadian consumer? Just quickly,
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  Speaker 1: we're running out of time, but is there anything on
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  Speaker 1: that list that you thought, ooh, that could be actually
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  Speaker 1: quite painful for consumers in particular? I know a lot
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  Speaker 1: of it's industrial products, but is there something on this list?
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  Speaker 2: Yeah. Well, food items are covered, and you mentioned some
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  Speaker 2: of them, seafood in particular. But food overall, I estimate,
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  Speaker 2: might see a cost increase for consumers on the order
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  Speaker 2: of over 2%, which again might not sound like a lot,
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  Speaker 2: but food is also one of these items that has
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  Speaker 2: seen much larger price increases over the past several years
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  Speaker 2: and is a rising concern for many households around cost
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  Speaker 2: of living, affordability, and tariffs here are going to disproportionately
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  Speaker 2: raise the prices of those goods.
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  Speaker 1: All right, let's leave it there. Trevor Toom, Professor of
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  Speaker 1: Economics at the University of Calgary. Thanks for coming on, Trevor.
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  Speaker 1: Nice to see you.