Tariffs may hit both US, Canada

Canada's new retaliatory tariffs will deepen the economic pain from its trade fight with the United States, with experts saying both countries will bear the costs.

Canada announced on Tuesday that it would impose retaliatory tariffs on about C$27.6 billion ($20 billion) worth of US goods, matching the value of Canadian products targeted by Washington's new 50 percent tariffs.

The measures, which will take effect on Sept 8, cover about 700 US products, with tariffs ranging from 15 percent to 50 percent.

"The new tariffs in both countries are going to hit both, though the larger American economy will suffer less," Ronald Stagg, a history professor at Toronto Metropolitan University, told China Daily.

In the United States, particular industries and states that trade heavily with Canada are likely to feel the effects more acutely, Stagg said.

"This includes the American alcohol producers who already are feeling the pinch from the removal of American wine, beer and spirits from sale by eight of the 10 provincial governments, which control alcohol sales," he said.

For Canada, however, the consequences could be more severe.

"In Canada, the automotive industry will be devastated if the American tariffs continue, and small-scale exporters may be driven out of business," Stagg said.

The Canadian government is taking steps to cushion the economic impact, he added, but "it cannot prevent all damage to the economy".

Mesbah Fathy Sharaf, an economics professor at the University of Alberta, said the US tariffs would put significant pressure on Canadian exporters. "The first impact will be on Canadian companies that sell heavily into the US market," Sharaf told China Daily.

The tariffs will affect industries ranging from steel and dairy to wood and paper products, furniture, appliances, electronics, agricultural equipment, wine and clothing, he said.

"A 50 percent tariff is huge," Sharaf said. "Some Canadian products may simply become too expensive for US buyers."

If the tariffs remain in place, "I would expect exports to fall, profits to shrink and some of the affected industries to start worrying about jobs", he said.

But Sharaf said the United States would not be insulated from the consequences.

"The US importer pays the tariff when the Canadian product enters the country," he said. While businesses may absorb some of the additional costs, "part of it will likely end up in higher prices for consumers".

US companies that rely on Canadian materials and parts could also face higher costs, he said.

"So this is not something that hurts Canada and leaves the United States untouched," Sharaf said. "Both countries will end up paying a price for this."

The effectiveness of Canada's retaliation, however, will depend on how Ottawa uses the measures, Sharaf said.

'Targeted measures'

"Canada can put pressure on the US, but we have to be smart about how we do it," he said. "I would rather see targeted measures than tariffs simply for the sake of retaliation, because Canadians can also end up paying more."

Sharaf also pointed to Canada's energy exports as a potential source of leverage.

The US Commerce Department's Wednesday report showed prices rose 3.7 percent in July compared with a year earlier.

"The US relies heavily on Canadian oil, gas and electricity," he said. "I am not saying Canada should cut off supplies. But that dependence gives Canada some leverage, and we should not forget that when we sit down with Washington."

Stagg, however, offered a more cautious assessment of how much leverage Canada actually has.

"Unless Canada responds further by limiting or canceling trade in oil, hydropower and potash, steps which would cause their own problems … the amount of leverage that Canada has is limited," he said.

Stagg said Canada's response was driven not only by economic considerations but also by growing frustration over repeated US demands during the negotiations.

"The Canadian response to the new American tariffs is driven by two things," he said, citing the Canadian government's belief that the US administration would continue to demand more from Ottawa and growing anger among Canadians over the repeated demands.

"However, it is clear now that every time Canada gives a little, the United States makes new demands," Stagg said.

He said tension over sharing toll revenue generated by the newly opened Gordie Howe International Bridge and the "endless list of demands" has intensified nationalist sentiment and put additional pressure on the Canadian government to take a stronger position.

For Canada, the row could also accelerate a long-discussed effort to diversify trade away from the United States, Sharaf said.

"Canada has talked about diversifying its trade for a long time, but this dispute gives us a much stronger reason to actually do it," he said.

That means looking more seriously toward Europe and Asia while also reducing barriers to trade between Canadian provinces, he said.

Canadian Prime Minister Mark Carney will address the European Parliament next month, said a statement from Carney's office on Wednesday.

Still, Sharaf said Canada should not expect to quickly replace the US market. "The point is not to turn away from the US. It is to make sure that next time there is a serious dispute, Canada has more choices than it has today," he said.

Sharaf also agreed with Carney that the tariff dispute represents a fundamental change in the bilateral relationship.

"I don't see this as just another trade disagreement," he said. "Even if the tariffs are eventually removed, I don't think the relationship will simply go back to where it was before."

Agencies contributed to this story.