Following U.S. President Donald Trump’s decision to approve a possible $60 billion in tariffs on Chinese imports, questions have been raised about whether Canada could find itself in the middle of a burgeoning trade war.
Experts agree that Canada’s close relationship with the United States means it will see some kind of impact, but the jury is still out on whether it will be positive or negative for Canadian consumers.
Colin Cieszynski, chief market strategist with SIA Wealth Management Inc., agrees that “there’s a possibility Canada could get caught in the crossfire.”
He noted that the impact will most likely be felt by Canadians in terms of the cost of goods. However, whether those prices will go up or down depends on how the market reacts.
Wall Street is already feeling the impact as the stock market struggled on Friday to shake off fears of a global trade war.
The Dow Jones Industrial Average and the benchmark S&P 500 indexes swung between gains and losses in a choppy session, but the Nasdaq Composite stayed firmly in the red. The three indexes are on track for their biggest weekly declines in six weeks.
“If consumer goods from China end up becoming more expensive, we could see that in rising prices,” he explained. However, he says that talks of a trade war often lead to a slide in international confidence, which could push the prices of Chinese goods down.
Trump’s bombshell trade announcement came shortly after his promise to place tariffs on steel and aluminum products imported into the United States, for which Canada and several other nations received a temporary exemption.
In a World Trade Organization meeting on Friday, the European Union dismissed U.S. assertions that recently announced tariffs were needed to protect national security and domestic industries.
WTO director-general Roberto Azevedo said in a statement that “Disrupting trade flows will jeopardize the global economy at a time when economic recovery, though fragile, has been increasingly evident around the world.”
“I again call for restraint and urgent dialogue as the best path forward to resolve these problems,” it read.
In addition, China has called the tariffs “groundless” and said it will fight to protect its interests. Since then, China has announced a list of U.S. goods worth approximately US$3 billion to be used as possible retaliation against U.S. tariffs.
“We don’t want a trade war, but we are not afraid of it,” said the spokeswoman, Hua Chunying in response to the announcement.
The latest proposed Chinese tariffs would add a 25 per cent charge on pork and aluminum scrap, mirroring Trump’s 25 per cent duty on steel, according to the commerce ministry. A second list of goods including wine, apples, ethanol and stainless steel pipe would face a levy of 15 per cent.
According to Lynnette Ong, a University of Toronto expert in Canada’s trade relationship with China, a trade war could boost tensions in the international trading arena, which “will not be beneficial to any country, including Canada.”
In addition, she notes that a trade war between the United States and China could put additional pressure on NAFTA negotiations. On the other hand, however, she notes that these developments present an opportunity for Canada to strengthen its trade relationship with China, and position itself as a prime export location for Chinese goods.
“The overall impact on Canada may be mixed. It is uncertain at this stage to know for sure how the tariffs, if imposed, will affect the NAFTA production chain which Canada is a part of,” said Ong.
The Chinese products being targeted with these tariffs are within the information and technology landscape, as part of an effort to grow exports of technology goods from U.S. companies — an initiative that began under former president Barack Obama. However, if the American market is no longer a cost-effective option for Chinese products, Canada presents a viable alternative.
“If China is not able to access the U.S. market, it will seek export markets elsewhere in order to allow their high-tech industries to grow. Canada being a high-income country will be one of the markets China will seek to reach,” Ong said.
Canada has invested significant resources into developing its information technology sector over the past few years, with recent announcements such as the federal government’s cluster-city initiative contributing to that goal.
Ong added that in the event of a trade war between the United States and China, many countries may find themselves courting potential Chinese exporters.
“If China cannot export its products to the U.S., it may strengthen bilateral trade relationship with Canada and other nations.”