Impact of Reciprocal Trade Duties
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In recent times, the Canadian economy has found itself in the midst of a complex situation, with the implementation of U.S. tariffs causing ripples across various sectors. The Carney government has not yet announced any new countermeasures regarding these tariffs, leaving many in a state of uncertainty.
The tariffs, which target specific sectors such as aluminum and steel (subject to a 50% tax) and vehicles (a 25% duty on non-U.S. content), have been a source of concern for businesses and consumers alike. Economists find the current situation confusing due to the frequent changes and uncertainties surrounding tariffs.
One of the most significant aspects of the tariffs is the impact on trade. The tariff exemption for products that comply with the Canada-United States-Mexico Agreement (CUSMA) allows nearly all exports to cross the border duty-free. However, for goods not covered by the USMCA, the cost of exporting to the U.S. has significantly increased, reducing export volume and profitability.
This increase in costs is being felt by businesses such as Brault & Bouthillier, a company specializing in the sale of toys and educational materials. They are facing increased costs due to U.S. tariffs and cannot pass the entire increase to their clients.
The entrepreneurs represented by the Canadian Federation of Independent Business (CFIB) are starting to feel tariff fatigue and would like to move on from the ongoing negotiations and changes. Jasmin Guénette, vice-president of national affairs at the CFIB, describes the current situation as a grueling and exhausting roller coaster ride for entrepreneurs.
The tariffs have also led to a challenging environment for businesses in Quebec, with the increased costs putting pressure on the liquidities of transformers in the region. Quebec's major grey metal producers like Rio Tinto and Alcoa have been able to pass on some of the cost to their clients or redirect shipments to other markets, but many transformers do not have that luxury.
The ongoing tariff disputes have not been limited to Canada and the U.S. Canada, along with China, is one of the few countries that has retaliated against the U.S. by imposing tariffs on around 1,200 U.S. products and certain U.S.-made vehicle components.
The long-term effects of these increased tariffs are far-reaching. They are predicted to cause a significant contraction of Canada's real GDP (about -2.1%), harming Canadian businesses and entrepreneurs through reduced market access and competitiveness, and leading to negative ripple effects on employment and economic growth. Canadian consumers may face higher prices and reduced product availability as firms adjust to disrupted supply chains and retaliatory measures increase costs.
The stock markets around the world have also felt the effects of the new tariffs announced by Washington. Both the S&P 500 in New York and the S&P/TSX composite in Toronto experienced declines due to the new tariffs announced by the White House, which are set to come into effect on August 7.
The CUSMA shield is not eternal, as it can be reviewed next year. However, the hope is that the ongoing negotiations will lead to a resolution that is beneficial for both countries and their respective businesses and consumers.
[1] Economic Impact of U.S. Tariffs on Canadian Exports [2] How U.S. Tariffs Are Affecting Canadian Businesses [3] The Long-Term Effects of U.S. Tariffs on Canada
- The tariffs, affecting sectors such as business, finance, and politics, are causing concern among entrepreneurs, economists, and the general public, as they predict a significant contraction in Canada's real GDP, harming businesses and leading to higher prices and reduced product availability for consumers.
- The ongoing negotiations and changes in political news have left businesses like Brault & Bouthillier and those represented by the Canadian Federation of Independent Business (CFIB) in a state of uncertainty, with increased costs disrupting their supply chains and profitability. These factors have also affected the stock markets in both New York and Toronto, causing declines due to the new tariffs.
