Canadians’ pocketbooks will likely be the victim of a prolonged trade war with the U.S., with the prices on consumer goods potentially rising over the next weeks, some analysts say.
“We will see prices across the board going up,” said Andreas Schotter, a professor of business at Western University in London, Ont.
“I could imagine that on certain products you will see over the next few weeks, or even right now, an increase in prices.”
Food prices may be the first to take a hit because such items are perishable and can only be stored for a relatively short period of time, says Adelphe Ekponon, assistant professor of finance at the University of Ottawa.
Still, he said, eventually “everything will be impacted.”
Smaller selection of goods
U.S. President Donald Trump followed through on his long-threatened tariffs on Tuesday, imposed 25 per cent levies on Canadian and Mexican imports, and 10 per cent on Canadian energy. Trump also doubled the tariff he slapped last month on Chinese products to 20 per cent.
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In retaliation, Canada slapped 25 per cent tariffs on $30 billion worth of U.S. goods. Those tariffs will be applied to another $125 billion worth of imports after a three-week consultation period.
Tu Nguyen, an economist at RSM Canada, said in a statement last month that, for Canadian households, a trade war “means an increase in prices of multiple consumer goods, including groceries, appliances and especially vehicles.”
She added that Canadians should also expect a smaller selection of goods as the importing of U.S. products slows down.
Some of the goods being targeted by Canada include meat and dairy products, fruits and vegetables, plastic building materials, various clothing items, lumber and other wood products, and kitchen appliances.
Just how much such prices will increase is difficult to say and depends on how the costs are absorbed, which could include lowering production costs, reducing employment, or companies cutting their profit share, Ekponon says.
But the trade war could cause overall inflation to rise from between 0.5 to one per cent, “which is huge,” he said.
Prime Minister Justin Trudeau spoke directly to U.S. President Donald Trump during a news conference on Canada’s response to tariffs. Trudeau said Canada and the U.S. have done “big things” together and should still be working together.
Along with prices rising in supermarkets, also expect increases in electronics, computers and other consumer products that either ship through or come from the U.S, Schotter says.
He said expect some retail businesses to start adjusting pricing — possibly even lowering them.
“There might be an immediate push of some businesses to even offer some discounts of existing stock,” he said.
But when that stock starts to run out, expect prices to rise.
The price of liquor from the U.S. will also go up, so expect to see restaurants and bars increasing their prices, he says.
“Which is unfortunately also detrimental,” he said.
Prime Minister Justin Trudeau, speaking from Parliament Hill on Tuesday, says Canada will immediately start imposing tariffs on $30 billion worth of U.S. goods. Trudeau said tariffs will be imposed on the remaining $125 billion of American products in 21 days as a response to U.S. tariffs that went into effect on Canada Tuesday.
As for the auto industry, expect price hikes on new vehicles. Peter Morrow, associate professor of economics at the University ot Toronto’s Munk School of Global Affairs and Public Policy, says that sector, with it’s integrated supply chain, will be the “poster child” for how tariffs affect items that go back and forth between both countries.
For example, brake pads that are produced in Canada and shipped to the U.S. to be put into an car there, would face a 25 per cent tariff, Morrow says.
When that car re-enters Canada — if there are retaliatory tariffs on autos — that tariff would apply to the entire value of the car, inclusive of the brake pads, he said.
So there would be some “double-counting,” he said. “Every time a good crosses the border it’s going to be hit with a tariff.”
Meanwhile, the exchange rate may also be a significant factor on prices, analysts say.
“What we also see is not just the tariff, it’s also the currency. Our dollar is dropping like a rock right now,” Schotter said.
Morrow said that when people stop wanting to hold Canadian dollars, that means the Canadian dollar loses value.
“And basically anything that you import is going to become more expensive regardless of if there’s a tariff or not.”.
U.S. tariffs will make everything from groceries to manufactured goods to housing even more expensive. CBC’s Lauren Bird asks economists and personal finance experts to break down how bad things could get, and what Canadians can do to protect their finances.
