ANALYSIS: In a Trump tariff trade war, even Canadian ‘winners’ will end up losing

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There are no winners in a trade war, but the impact on Canadian businesses will depend on a wide variety of factors, from Canada’s retaliatory measures to consumer behaviour and the make-up of companies’ balance sheets, experts say. U.S. President Donald Trump’s avowed tariffs – 25 per cent on Canadian goods and 10 per cent on energy – and Canada’s retaliatory tariffs on American goods have been paused until at least March 4 as both countries work on border-related security measures. Our Jennifer Bieman reports on whether some Southwestern Ontario industries might withstand the possible trade war better than others.

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AGRIFOOD

It’s possible the U.S. tariff threat, and the increased cost of American goods if Canada implements retaliatory tariffs, will encourage consumers to turn to Canadian products, said Ananth Ramanarayanan, associate professor of economics at Western University.

But many made-in-Canada products have U.S. inputs or ingredients, whose price will rise as a result of the trade war, Ramanarayanan said. These increased costs are likely to be passed down to consumers, he said.

Canada has a free trade agreement with Mexico, a major supplier of fresh produce on Canadian grocery store shelves, said Ramanarayanan. It’s not clear that, if American produce prices rise with the retaliatory tariffs, Canadians will automatically opt for greenhouse-grown peppers from Ontario instead of Mexican imports, he said.

The trade war will also harm the bottom lines of larger Canadian businesses, who will see the U.S. sales they’ve come to depend on decline sharply, said David Soberman, professor at the University of Toronto’s Rotman School of Management.

A Canadian granola bar manufacturer, for example, that’s large enough to have their products in grocery stores coast-to-coast is almost certainly taking advantage of Canada-U.S. free trade to get their granola bars on American store shelves, he said.

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The U.S. tariffs imposed on Canadian imports will raise the cost of those products for Americans, Ramanarayanan said.

“Consumers in the U.S. will buy less from Canada. That’s going to be hard for any Canadian business that exports to the U.S. They can’t just sell everything they were going to sell in the U.S. in Canada instead,” he said.

DOMESTIC TRAVEL, LEISURE INDUSTRY

It’s possible that patriotic Canadians disheartened by the Trump administration’s trade war will forgo U.S. travel and prioritize domestic destinations instead.

“Some businesses may benefit from Canadians’ decision not to travel to the U.S. There are snowbirds that have curtailed their activities. Those people will be staying at home in Canada and spending money here,” Soberman said.

But that decision to stay in Canada might be a convenient excuse for the relative lack of buying power the loonie has in comparison to the U.S. dollar now, he said.

“Our dollar is very weak right now,” Ramanarayanan said. “It’s much costlier this year, compared to last year, for Canadians to travel in U.S. prices.”

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The potential soft-landing for Canadian tourism and leisure businesses in the event of a trade war will be dashed when the Canadian economy slips into recession, which is widely expected if Trump goes through with his threat.

Tariff-related job losses and economic pain mean less discretionary income floating around for vacations and recreation.

“The overall impact of this thing, if it happens, is not going to be positive,” Soberman said.

CANADIAN BREWERS, DISTILLERIES, WINERIES

It’s possible a small winery, for example, that does regional business only could see demand for its products grow as Canadians seek to support local companies, Soberman said.

“If you’re a Canadian manufacturer that does not export to the U.S., you may be able to increase your volume. There may be isolated cases of Canadian companies doing well because of the buy-Canadian trend, but it’s going to be the exception not the rule,” he said.

Larger Canadian alcohol manufacturers are likely to be exporting to the U.S., Soberman said, and will see declines in that part of their business that are highly unlikely to be offset by growth in domestic sales.

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It is also difficult to pinpoint the impact of the recent buy-Canadian mindset on consumer behaviour, Ramanarayanan said, and how long and under what circumstances customers will stick with it.

Even if Trump’s tariffs come and the Ontario government makes good on its promise to pull U.S. products from LCBO store shelves, other non-Canadian options remain for consumers, Ramanarayanan said.

“Somebody who usually buys American whisky, what’s their next best option? Is it a Canadian whisky, or is it an Irish whisky? It’s not easy to tell,” he said, adding cost and quality are two factors that could eclipse buy-Canadian patriotism.

“It will take a lot of data to figure out how people choose to substitute these things, but it’s not a given that Canadian products are it.”

jbieman@postmedia.com

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