As U.S. Tariffs Become Reality,
Canadians Prepare for Economic Pain
An expert in the automotive industry
says factories may shut down in days as costs skyrocket and President Trump
disrupts decades of economic integration with steep tariffs.
·
Canadians
say that the relationship between the two countries will never return to what
it once was.
·
Aside
from oil and gas, Canada’s largest export sector is the auto industry. On
Tuesday, Mr. Trump suggested that the only way out of tariffs for the sector is
to move all of its production to the United States. Aside from abandoning a
skilled work force, that would require billions of dollars in new investments.
·
The
25 percent tariffs are being paid by the importers, either other parts makers
or automakers. Most contracts allow an automaker to deduct tariffs it pays when
settling a parts company’s bill.
·
Deductions
will make parts suppliers, which have generally have
single-digit profit margins, instantly and deeply unprofitable.
·
Lumber
mills in the western province are facing a dizzying array of tariffs. This
week’s 25 percent tariff is on top of a 14.4 percent tariff that the U.S.
government expects to raise this summer, to more than 27 percent.
·
Canadians
believe that their country is simply being used as part of Mr. Trump’s plan to
fund substantial U.S. tax cuts with tariffs.
·
Attempting
to fend off additional tariffs that Mr. Trump has promised to put on top of
Tuesday’s 25 percent.
· Province canceled a 100 million Canadian dollar ($69 million) contract with Elon Musk’s Starlink satellite service to provide internet in rural areas.
The
trucks that carry about $300 million worth of auto parts each day over the bridge
from Windsor, Ontario, to Detroit are still rolling as usual. But in the aftermath
of President Trump’s decision to impose 25 percent tariffs on most categories of
Canadian exports, the mood in Windsor, like all of Canada, was transformed.
Mr.
Trump’s move has ignited a sense of economic anxiety and anger among Canadians about
how they are being treated by their neighbor, ally and
best customer. Most are still puzzling over Mr. Trump’s motivations and objectives
for the tariffs, as well as his comments about annexing Canada as the 51st state.
And
as they turned their attention to getting the potentially crippling tariffs, and
a 10 percent levy on Canadian oil and gas and some minerals, lifted, politicians,
business people and ordinary Canadians say that the relationship
between the two countries will never return to what it once was.
Flavio
Volpe, the head of a Canadian auto-parts maker trade group, said that his members
could start shutting down factories in days, and that he feels betrayed by the United
States.
“We’ve built two societies on the same values,”
said Mr. Volpe, who is also a member of Prime Minister Justin Trudeau’s Council
on Canada-U.S. Relations. “The man in the White House did a U-turn and drove right
over us.”
Mr.
Trudeau and anxious business leaders throughout Canada said that their country’s
focus must be on ending the tariffs as quickly as possible.
Most
forecasts project that Canada’s export-dependent economy will be sent into a
recession, although they differ on timing and its initial severity.
“We
have a limited experience for this magnitude of a trade shock,” the Royal Bank of
Canada, the country’s largest financial institution, said this week. Some Canadians
reached back for comparison to the Smoot-Hawley tariffs of 1930, which raised the
average U.S. import duty to a staggering 59.1 percent. Many economists believe that
they worsened the Great Depression, but the two countries’ economies were far less
integrated at that time.
Historically,
automotive trade has been largely balanced between the United States and Canada.
Parts often swirl around between Canada, the United States and Mexico, sometimes
crossing borders repeatedly before winding up in vehicles in a dealer’s showroom.
Mr.
Volpe, of the Automotive Parts Manufacturers’ Association in Canada, said
that, aside from the tariffs, trade remained unchanged on Tuesday, an assessment
backed up by the usual migration of trucks to the Ambassador Bridge.
Mr.
Volpe said that those deductions will make parts suppliers,
which have generally have single-digit profit margins, instantly and deeply
unprofitable.
He
expects that most of his members can cover those losses from their cash reserves
for about a week. After that, they will be forced to stop shipments.
“No
one is going to burn up their cash reserve for the president of the United States,”
he said.
For
more parts, automakers usually have no alternative suppliers, let alone ones in
the United States. Setting up new suppliers would take time and substantial investment.
The result, experts say, will be a parts shortage that rapidly cascades into assembly-line
shutdowns. Thousands of workers in Canada, the United States and Mexico would be
left idle.
Some
industries began idling small numbers of workers before the tariffs came into effect.
Bill
Slater, the president of a United Steelworkers local in Sault Ste. Marie, Ontario, said that Algoma Steel laid off about 20
of his members who are salaried employees, citing the tariffs. He said that a number
of probationary hourly workers were also let go by the mill.
Truck
drivers had a mixed experience. Stephen Laskowski, the president of the Ontario
Trucking Association, said that some had a surge in business as companies moved
to get products into the United States before the tariffs came into effect, while
others were laying off drivers because customers were canceling
shipments.
Canada’s
forestry industry knows tariffs all too well. Special U.S. duties on softwood lumber
go back decades and were a factor in Canada seeking the 1989 free trade agreement
with the United States, which was later expanded to include Mexico. (Canada has
repeatedly failed to get an exemption from the U.S. trade complaints system that
imposes the softwood lumber tariffs.)
But
Kurt Niquidet, the president of the British Columbia Council
of Forest Industries, said that adding the 25 percent tariff “really puts us into
unprecedented territory.”
Lumber mills in the western province are
facing a dizzying array of tariffs. This week’s 25 percent tariff is on top of a
14.4 percent tariff that the U.S. government expects to raise this summer, to more
than 27 percent. Then Mr.
Trump announced last weekend that he’s opened an investigation into lumber imports
that could result in even more tariffs.
While
the United States supplies about 70 percent of its own lumber, Mr. Niquidet, an economist, said that American forests and mills
cannot replace all the lumber from Canada, nor can it be sourced from other countries.
“There will still be imports from Canada,” he said.
“Prices in the U.S. will rise.” Some Canadian lumber mills, however, may not survive
the trade assault, he added.
While
Mr. Trudeau speculated that Mr. Trump was seeking a “total collapse of the Canadian
economy, because that’ll make it easier to annex us,” Mr. Volpe said he was not
sure it’s that complicated. “If it looks like he is dismantling the structure of
the postwar economy, then he is,” Mr. Volpe said. “What are you going to do about
it?” Some Canadians believe that their country is simply
being used as part of Mr. Trump’s plan to fund substantial U.S. tax cuts with tariffs.
Jean
Simard, the president of the Aluminum Association of Canada,
fought a successful battle over the 10 percent tariff on Canadian exports of the
metal Mr. Trump enacted in during his first administration. Now Mr. Simard is attempting to fend off additional tariffs that Mr. Trump has
promised to put on top of Tuesday’s 25 percent. He said that he believes the
president is telling the world: “This is what I’m able to do to my closest allies
— think about what’s awaiting you.”
Mr.
Simard added: “It’s an old barbarian approach to war.”
As
the tariffs were rolled out, actions against American goods quickly came into play.
Government-owned liquor stores, including in Ontario, pulled U.S. beer, wine and
spirits from off their shelves, and that province canceled a 100 million Canadian dollar ($69 million)
contract with Elon Musk’s Starlink satellite service to provide internet in rural
areas.
Some
Canadians are also vowing not to travel south, a decision perhaps also informed
by the decline of the Canadian dollar brought on by the tariffs.
Most
winters, Lee Miller, a retired electrician from Saint John, New Brunswick, would
be traveling in his motor home through sunny warm states, including Florida.
“As
soon as Trump started talking tariffs, I said, ‘Nope, not going,’” Mr. Miller said.
After canceling this year’s trip, he plans not to enter
the United States as long as Mr. Trump is president. That will, however, mean missed
visits with friends and family who live across the border.
“This
is one of those things that tears families apart,” he said.