U.S. tariffs will affect price of food, gas and other items in Canada

Life could soon be getting more expensive, thanks to Donald Trump.

 

If the U.S. president sparks a trade war by slapping a 25 per cent tariff on Canadian imports this weekend, expect everything from fresh fruits and vegetables to filling up at the gas station to cost you more — in a hurry.

 

And that’s even if Canada doesn’t retaliate by taxing American imports, experts say.

 

The biggest reason? The Canadian dollar would take a pounding, making almost everything we import more expensive, says supply chain guru Fraser Johnson.

 

Fresh produce from the U.S. would cost more almost instantly because wholesalers pay their American suppliers in U.S. dollars. Even fruit and vegetables from further afield are often priced in American dollars, said Johnson.

“The U.S. dollar is still the main currency of international business,” said Johnson, a professor at Western University’s Ivey Business School. “A lot of goods that we import are priced in U.S. dollars, even if it’s not being bought from the U.S.”

 

Filling up your car would also get pricier in a hurry, Johnson added.

 

“Oil and gas contracts are priced in U.S. dollars, so we’d notice the effect on prices at the pump pretty quickly here, if the loonie’s dropping.”

 

Other imported items — clothes, electronics, household appliances — would also eventually rise, as their producers are often paid in U.S. dollars, no matter where they’re made.

 

Those goods, however, typically have a longer supply chain, meaning it would probably take longer for price increases to be passed along to retail customers in Canada, Johnson said.

 

And if Canada retaliated with import tariffs on U.S. goods? Things would get even more expensive, Johnson said.

 

Bank of Canada governor Tiff Macklem acknowledged Wednesday that a trade war would hammer the Canadian economy, including causing higher prices for imports.

 

“A long-lasting and broad-based trade conflict would badly hurt economic activity in Canada,” said Macklem after announcing a quarter percentage point cut in the bank’s key overnight lending rate to three per cent. “At the same time, the higher cost of imported goods will put direct upward pressure on inflation.”

 

Trump has threatened to impose 25 per cent across-the-board tariffs on imports from Canada and Mexico as soon as Feb. 1. While it’s impossible to know the precise breadth and size of tariffs, by being so public with his threats, it’s clear something nasty is coming, said Matthew Holmes, chief of public policy at the Canadian Chamber of Commerce.

 

“You don’t have to take him literally, but you do have to take him seriously,” said Holmes, who wouldn’t be surprised to see Trump target Canadian steel and aluminum, which he did during his first term.

 

Then again, suggested Holmes, Trump could also start out with broad-based tariffs, at least partly as a negotiating tactic to draw out concessions in other areas, as happened with the on-again, off-again tariffs against Colombia imposed last weekend.

“He could start out broadly, then carve out exemptions,” said Holmes. “The only person who knows for sure is Donald Trump. And he’s wielding trade as a weapon.”

 

Currency traders believe the threat of 25 per cent tariffs is “a negotiating lever,” and have priced the more realistic prospect of 10 to 15 per cent tariffs into the loonie’s exchange rate, said Shaun Osborne, chief foreign exchange strategist at Scotiabank.

 

Still, if the 25 per cent tariff did happen, it could drive the loonie to lows not seen in more than two decades, said Osborne.

 

“Assuming unilateral tariffs of 25 per cent applied broadly, I think the loonie is likely to drop back toward the low from the early 2000s — around 61 cents — at least,” said Osborne. “The decline would be sharp, probably over the course of a few months, before stabilizing.”

 

In the last year, the loonie has already dropped more than five cents, largely because the Bank of Canada has been cutting interest rates more quickly than its American counterparts at the U.S. Federal Reserve. Last Jan. 29, the loonie was worth 74.56 cents (U.S.). Wednesday afternoon, it was trading at 69.26 cents.

 

 

 

 

This article was first reported by The Star