Donald Trump gets inaugurated on Monday and has promised to impose 25-percent tariffs on all foreign goods entering the United States. It’s created a firestorm of concern across the country and for good reason. Should the tariffs actually be imposed as described for any appreciable period of time, economists are predicting a recession in Canada to the tune of 2.5 to 4.5 percent of GDP.
Whether this actually happens is almost totally unclear. Trump made tariffs a centerpiece of his campaign last year and won. Attempts by the commentariat to ignore or dismiss the threats have been met, by him, with doubling down and making the threats even more loudly. If we take Trump at his word, it’s happening Monday. It’s undeniable that he has the unfettered power to do it under Section 232 of the trade agreement formerly known as NAFTA, which he used in 2018 to impose tariffs on our steel and aluminum exports. Hilariously, that section is supposed to apply when the exports in question pose a security risk to the U.S. But I suppose a security risk is whatever you say it is.
Reason to think it might not happen include everything an economist or political commentator might say. The tariffs would act, at least in the short term, as a tax on American consumers, driving inflation. U.S. manufacturers would suffer higher costs for the raw materials they import, potentially leading to layoffs and plant closures. American housing construction would be hit by higher prices for softwood lumber, paper products, oil-based products including plastics and anything using steel or aluminum. Aside from a very few companies that encounter significant competition from Canada in their U.S. markets (maple syrup?), there probably isn’t a single American producer that wants this.
All of which makes the following scenario most likely: the tariff kerfuffle takes the same route it did last time. Trump puts the tariffs in place with great fanfare and satisfies his base that he’s as good as his word and really taking it to those predatory Canadians. Our exporting companies take hits to their competitiveness. Some fail, some shrink, some find more activity domestically or elsewhere in the world. But the hardest hit are the balance sheets of American manufacturing companies depending on our goods and the distributors selling them. As time goes on, their calls get louder and louder for Trump to drop the tariffs and his incentive to keep them in place diminishes as people get bored of the story and the political benefit drops off. After some face-saving period of time, Trump quietly drops the tariffs, perhaps declaring total victory in his trade war against his largest trading partner.
Certainly our leaders here in Canada think the tariffs are happening, or are at least unwilling to act like they aren’t happening and get caught looking complacent. That’s another data point that makes me think the tariffs are likely to be implemented to at least some extent. They know more than I do about what the Americans are saying behind the scenes and whatever they are hearing does seem to be encouraging them to take the matter seriously.
The problem with Trump’s ultimate objective for tariffs – to stimulate revitalization of American manufacturing – is that it takes time. His tariffs would need to be in place for years before U.S. production would be able to replace the expensive, tariffed imports. And of course, U.S. production might never be able to make the goods as cheaply as they were before. That was the whole point: some parts of the world can do things less expensively and can supply American businesses for less than domestic producers. American companies didn’t go buy things from abroad because they felt like it…they did it because it was the least expensive and most efficient way to go.
Another school of thought is that the tariff threats are a bluff and a starting point for negotiations for new trade deals with terms more favourable to the U.S. I don’t think we should take that bait until it’s proven that Trump can keep the tariffs in place in the face of rising domestic resistance. Let them stew in their juices and help out our struggling exporters with tax dollars.
The damage to our exporters would be real and serious, causing a recession that would hurt every business in the country. But, in our sector, another threat would come from countervailing tariffs imposed by Canada on the American products we buy for our operations. Glass (I guess we’re wishing we had domestic float glass production now), fabrication machinery, tools, hardware, adhesives and sealants, spacer – a lot of it comes from the U.S. or through U.S. distribution into Canada. Most of our businesses do most of their sales in Canada. The tariffs won’t affect them directly, but a jump in costs and maybe even a return to supply shortages would just add pain to the general recession. I think for the industry writ large, retaliatory tariffs on our supplies is a bigger threat than the U.S. tariffs they are meant to combat. Given that I think the U.S. tariffs on our goods are mostly performative and will swiftly become intensely unpopular there, it doesn’t make much sense to me to hurt our industries severely in order to do some light damage to the U.S. exporters (who mostly depend on the U.S. domestic market anyway).
Retaliatory tariffs on finished U.S. fenestration products might be nice. Though I feel bad saying that when we all have friends in the industry in places like Minnesota and Michigan. Given I don’t think retaliatory tariffs are going to be the thing that reverses Washington’s course anyway, I’ll stop short of saying we should tariff those products.
Ottawa, if your listening, when you’re drawing up your list of products to hit with retaliatory tariffs, please leave Canada’s fenestration and glazing industries out of it.