Trump tariff proposal could cost Canadians $1,100 per year

Article content

An election policy proposal from Donald Trump that would apply a 10-per-cent tariff on all U.S. imports could have wide-ranging economic consequences for the Canadian and U.S economies, including a loss of real annual income of $1,100 (US$800) for people on both sides of the border, a new report argues.

The report, titled Partners in Prosperity: Exploring the Significance of Canada-U.S. Trade and authored by University of Calgary economics professor Trevor Tombe, found the U.S. tariff and expected retaliatory tariffs from Canada and other countries, would have a significant impact on productivity, prices and incomes in both countries.

Article content

“I estimate that real incomes in Canada would decline by 1.5 per cent, while labour productivity would fall by nearly 1.6 per cent,” Tombe said in the report. “In the United States, both real income and labour productivity would decline by approximately one per cent.”

The report noted that the last time the U.S. imposed a 10-per-cent tariff across all imports was in 1971, when president Richard Nixon tried to improve the U.S. trade balance as it withdrew from the international gold standard. While the policy only lasted four months, Tombe noted it was a significant development in trade policy.

“As with today’s proposal, Nixon’s tariff was controversial and strained relationships with major U.S. trading partners,” the report said. “Given the short duration of the ‘Nixon Shock,’ a more permanent 10 per cent across-the-board tariff would likely cause greater disruption in trade flows between the two countries.”

For example, the tariff could force U.S. firms to seek out domestic suppliers that have lower productivity than their first choice.

The report also predicts that output for Canadian exports of energy and manufactured car parts and vehicles could decline by as much as 22 per cent.

Article content

Article content

It’s estimated nearly 2.4 million Canadian jobs are tied to Canadian exports to the United States. While the report provided no details on how many jobs would be impacted by the tariff, estimates during the “Nixon Shock” suggested Canada would have lost 90,000 jobs if the tariff had lasted for a full year.

The report also highlighted how much individual states depend on Canadian trade, with Canada being the top exporter destination for 34 U.S. states.

“In Montana, trade with Canada accounts for 16 per cent of the state economy, in Michigan it’s 14 per cent and in Illinois, it’s 10 per cent,” Tombe said in a release accompanying the report. “Even as far away as Texas, trade with Canada still accounts for four per cent of the state economy.”

The impact U.S. trade has on provincial economies is even higher. In New Brunswick, trade with the U.S. accounts for 62 per cent of the economy, in Alberta and Manitoba it’s 42 per cent and in Ontario, 41 per cent.

Additionally, Canada is a large contributor of inputs for finished U.S. products, also known as value-added trade. The amount of Canadian value-add embedded within U.S. exports has been around US$20 billion per year and exceeded US$24 billion in 2019, according to the OECD.

Article content

“This indicates that Canadian exports are disproportionately used by U.S. businesses as inputs to produce other goods,” the report said.

Similarly, about 12 per cent of U.S. imports from Canada consist of value-added trade that originated in the U.S.

“The sustained economic benefits of this relationship are clear: both countries gain from an integrated supply chain that leverages their respective strengths,” the report said. “By fostering and protecting trade between Canada and the U.S., both nations can further enhance their economic stability, productivity and global competitiveness in the years to come.”

• Email: jgowling@postmedia.com

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

Article content