Early in November, Donald Trump proposed a 25 per cent tariff on all goods from Mexico and Canada through a social media post, an unreasonable decision that puts Canada at a disadvantage.
A tariff is a tax on imported goods or services collected by the country’s government who are importing the product. Its purpose is to raise revenue, protect domestic industries or exert political leverage over another country.
They often result in unwanted side effects, such as higher consumer prices, which could cause more financial problems for residents in the Waterloo Region. The disruptions caused by the tariff will also leave Canadians with limited options on essential products, like prescription medications or household goods reliant on U.S. components.
The Greater Kitchener-Waterloo Chamber of Commerce says the tariffs will affect Ontario’s manufacturing sector the most. Other business sectors that will be impacted the most include the automotive, energy, chemical, plastic manufacturing, forestry products and machinery sectors.
In 2023, Ontario’s exports represented one-fifth of the provincial economy, and more than three-quarters of Ontario’s international trade was with the U.S.
This represented 39 per cent of the provincial economy. Trevor Tombe, an economist from the University of Calgary, said the 25 per cent tariff would reduce the size of the country’s economy by 2.6 per cent next year compared to the status quo, making Canada undergo a recession.
In the past, when Canada faced high tariffs on certain goods and industries, it raised the cost of trade, lowered America’s economic performance, stifled economic activity and kept prices for many goods and services higher than necessary.
Higher tariffs also increase business costs by making necessities such as equipment and machinery more expensive, which may eliminate jobs and reduce economic opportunities for Ontarians. In multiple social media posts, Donald Trump claimed that the flow of drugs and illegal immigration led to the creation of the tariffs.
If Canada and Mexico do not secure their shared border to the flow of irregular migrants and drugs, then he will implement the tariffs. The Canadian Chamber of Commerce created a financial model suggesting that even a 10 per cent across-the-board tariff would reduce the size of the Canadian economy between 0.9 and one per cent, resulting in $30 billion per year in economic costs.
There are also scenarios where countries like Canada could respond with tariffs of their own in response tariff. In that case, Canadian incomes would fall by 1.5 per cent and productivity would fall by 1.6 per cent according to the Chamber of Commerce’s report.
It won’t be Canada alone that receives negative backlash from this decision. The U.S. will also suffer from this decision.
Ontario premier Doug Ford said Trump’s proposed tariffs wouldn’t work due to the integration of the U.S. and Canadian economies. He said that the auto sector alone is a critical example, as parts must be shipped between Ontario and Michigan seven to eight times before assembly.
The tariff could also increase the lumber price imported from Canada, increasing construction costs, gas, and heating oil in the U.S. Ontario and Canada benefited greatly from free trade with the U.S., and a threat to the free flow of goods and services will pose a threat. It would also violate USMCA (United States-Mexico-Canada Agreement) provisions, which ensure free trade among member countries.
In upcoming weeks, Canada’s provincial and federal political leaders must show the U.S. administration the negative aspects of the tariff. It will not only impact Canada’s industries negatively.
But it will also cause monetary issues such as inflation that could further harm the economy. Many individuals, including Tony LaMantia, president and CEO of Waterloo Economic Development Corporation, think the Tariffs won’t get implemented.
However, Canada has to be mindful that it could happen in the future.
Contributed Photo/Forbes Breaking News on Youtube. Donald Trump.
