Offsetting Headspinning Upheaval in Canada-U.S. Free Trade
"[A prolonged U.S.-Canada tariff war would hit Canadian output by nearly three percent over two years and] wipe out growth [during that period].""[Factors pushing prices higher] more than offset the downward price pressure from weaker demand [causing inflation to rise above the two percent target].""We can't let a tariff problem become an inflation problem."Bank of Canada Governor Tiff Macklem
"A lot of companies have taken months and months of inventory and they've transferred it to the United States already.""So I'm talking to companies who have maybe moved six to eight months worth of inventor to the United States, which normally that stuff would have been stored in Canada and shipped across as needed.""Canada is the only country that has a free trade agreement with all G7 countries. And now, I find clients are asking me about it, they're questioning it, they're looking at the world map, they want to know where else we have free trade agreements.""Some say that they could expand their domestic sales by as much as 25 percent if those barriers [provincial barriers to intra-country trade] can come down.""The sense I get when talking to companies, it's a question of national pride and sovereignty. They're Canadian and they want to see Canada and the business community in Canada succeed, and they plan on being part of that."Joy Nott, partner, customs and international trade, KPMG"So far I'm seeing it's more the ones that already have some manufacturing or some locations in the U.S. [considering shifting some production activities] so absolutely short-term if that's a mitigating approach for some of them.""I have no doubt that there are lots of discussions going on in boardrooms."Tammy Brown, partner, national industry leader for industrial markets, KPMG
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Should the Trump administration's tariff war last for long, Canada's economy will be heading for a contraction. U.S. President Donald Trump's March 4 imposition of across-the-board tariffs will pare two to four percentage points off Canada's gross domestic product growth, an estimation that economists, broadly speaking, are in complete agreement with. This is what a 25 percent tariff on all goods coming into the United States from Canada, and 10 percent on energy from Canada will accomplish.
Canada's official retaliation on $30 billion of American goods, set to expand to $155 billion in following weeks have been put into motion. The anticipation is that the resulting economic shock will force the central bank to cut borrowing costs resulting from the combination of rising price pressures and a slowdown in the economy.
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According to a new survey by KPMG in Canada, two-thirds of Canadian businesses feel they would be able to withstand a tariff war lasting over a year. In preparation for which many companies have taken steps to initiate strategies meant to limit the impact on their operations from tariff risk. Even so, 30 percent of Canadian businesses foresee significant profit losses as a result of the tariff impacts, and three percent of companies would be likely to pack up their businesses.
The opinions of 602 large and mid-size businesses across Canada were collected through the survey. Of the companies surveyed, about half are involved in manufacturing, energy and natural resources representing those industries expected to be hit hardest by U.S. tariffs. The remaining businesses are those involved in industries such as consumer and retail, agriculture, construction, financial services, transportation, infrastructure, technology and telecommunications.
The survey revealed that half of those surveyed businesses are in the process of reducing production and/or laying off employees in anticipation of tariffs hitting their industries. Some 28 percent are set to begin reducing staff and production in the near future -- four to six months into a trade war; half of the businesses responding expect their employee base to decrease in Canada over the course of the coming year.
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While 52 percent of businesses involved agree it will be a challenge to shift business to another jurisdiction in the short-and-medium term, about half (46 percent) reveal they have three to five alternative markets other than the United States, for their products. Then again, up to 84 percent feel that the elimination of interprovincial trade barriers will be "extremely or very important" to their business survival in a trade war. Most businesses -- close to nine in ten -- would ideally like to see "strong and determined" political will from all government levels to open free trade throughout Canada.
Labels: Canada/Mexico/U.S. Trade Pact, Inflation Threat, President Trump, US Trade Tariffs
posted by Pieface @ Wednesday, March 05, 2025
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