50-per-cent tariffs on alcohol, dairy, hockey sticks looming; ‘If we thought that trade uncertainty was improving or going to end, the answer is no’
The United States government's threatened 50 per cent tariffs on approximately $28 billion in Canadian goods could ultimately cost the Canadian economy around 50,000 jobs – and the trade uncertainty driving that risk is unlikely to disappear before the end of President Donald Trump's mandate.
That’s the assessment of Douglas Porter, Chief Economist and Managing Director Economics at BMO Capital Markets in Toronto, following Trump's July 20 announcement of new levies on Canadian exports – including alcoholic beverages, dairy products, honey, cement, and “ice-hockey and field-hockey articles and equipment (other than balls and skates)” – under Section 338 of the US Tariff Act of 1930, a legal provision unused in nearly a century that allows the president to impose tariffs of up to 50 per cent on imports from countries that discriminate against US business. The tariffs are set to take effect on Aug. 19 and apply regardless of Canada–United States–Mexico Agreement (CUSMA) compliance – a departure from previous rounds that has rattled confidence well beyond directly exposed sectors.
"I don't lightly dismiss the threat," Porter says. "I do believe it's a negotiating tactic, but one we can't ignore, because we've seen that the president is actually willing to carry through sometimes on pretty extreme threats."
Some of the products targeted by the tariffs are likely intended to make a statement, says Porter. “Some are very serious, like plastics, but clearly some of it is meant to grab headlines,” he says. “The tariffs on things like wine and spirits, it’s pretty clear that's a direct response to many provinces taking [US] alcohol items off the shelves, and some of the dairy tariffs are a response to Canada's choices on the dairy side – but a lot of the other ones seem like they're pretty much a statement, like honey and hockey sticks.”
Why Canada is more exposed to tariffs than the headlines suggest
The products caught in the new tariffs represent approximately five per cent of what Canada sells to the US – a figure that carries far more weight here than it would for a larger trading nation, according to Porter.
"You just can't compare Canada to other countries like Japan, China, or the UK, because we’re so much more dependent on the US," he says. "Five per cent of exports from China to the US would be a drop in the bucket, but for Canada, it's very serious – it would affect almost one per cent of our economy if they do come to fruition."
Porter expects that, after some negotiations – talks around the renewal of CUSMA are ongoing – Canada will avoid the full 50-per-cent rate, but he draws little reassurance from that, he says.
In a worst-case scenario, Porter estimates the tariffs could shave roughly half a percentage point from Canadian gross domestic product (GDP) and result in significant job losses. "Could it ultimately cost the Canadian economy 100,000 jobs? It's not impossible," he says. "I would put that on the upper range, but a more realistic guess is ultimately it could be about 50,000 jobs – which is significant."
Porter acknowledges that the Canadian economy can sometimes produce that many jobs in a single month. “It’s not a killer blow, but it's pretty serious stuff,” he says. “It's not quite enough to push the economy into recession… because it just isn't a large enough section of the Canadian economy, but I also disagree with some who said it would only cost the economy about a tenth of a percent of GDP – I think the truth is somewhere in between.”
Trade uncertainty, tariffs aren’t going away
HR leaders and business decision-makers shouldn’t wait for resolution of the tariffs issue but rather should plan around sustained instability in the short term, says Porter.
"The bigger takeaway here is: if we thought that trade uncertainty was improving or going to end, the answer is no," he says. "We're going to be dealing with trade uncertainty perhaps through the rest of this president's mandate – it might get a little less bad as we go ahead, but I don't think that businesses should assume that this is going to go away or improve in a meaningful fashion."
If tariffs start having indirect impact for businesses not directly in the line of fire, it will show up in decreased investment, says Porter. “We’re seeing some reluctance of business investment, not just in manufacturing, and we've certainly been focused on the uncertainty and the reluctance to invest,” he says. “Initially it seemed to really hit consumer confidence, but that seems to have gone away as I think consumers have realized that unless their job is right in the line of fire, this trade war doesn't necessarily affect them a lot,” he says.
On the positive side, Porter points to a largely overlooked story of resilience in the manufacturing sector in particular. "I think one of the bigger stories is how resilient manufacturing has proven to be – it’s certainly been affected by [tariffs], but we haven't seen a big change in manufacturing employment in the last year,” he says, although he cautions that those sectors must remain nimble. "They really do have to brace for a couple more years of pressure.”
The picture is different for domestically oriented industries, with sectors such as financial services, healthcare, and retail carrying on after the initial shock without significant interruption, according to Porter.
Those findings align with fresh data from a KPMG Canada survey of 359 business owners and decision-makers released Wednesday, which found two-thirds have already adjusted prices to absorb tariff-related costs, and a similar proportion agree that Canada should be more transactional and dispassionate when negotiating with the US, as it’s the new normal.
Government support and organization-level planning
On the federal government's tariff response program – which has committed more than $500 million to affected workers, extended employment insurance (EI) relief, and approved work-sharing agreements for thousands of employees – Porter offered support with an honest ceiling.
"Unlike in COVID, the federal government can't necessarily always be there everywhere for everyone," he says. "There's only so much it can do to replace lost US demand, so while [the support] has been pretty substantial, is it enough? Probably not entirely."
For business and HR leaders in organizations directly affected by the new threatened tariffs, long-term framing is ultimately the strategy Porter suggests. “Businesses have to assume that we're going to be dealing with a lot of uncertainty in our trade relationship with the US," he says. "But we have managed."
