Ramifications of a trade war: an expert look at the numbers for Canada
Scotiabank says across-the-board tariffs averaging 20% would see Canada's economy shrink 1.8%.
The report by Scotiabank said if the US breaks all trade ties with its partners – and imposes across-the-board tariffs that average 20 per cent – then Canada and Mexico would see their economies contract in 2020.
For Canada, it predicts the economy would shrink 1.8 per cent.
“A ramp-up in protectionism in the US results in a negative impact on growth in each of the NAFTA partners’ economies,” said the report, co-authored by Scotiabank’s Brett House, Juan Manuel Herrera, Rene Lalonde and Nikita Perevalov.
This worst-case scenario is one of several potential outcomes examined by Scotiabank.
Experts have been trying to gauge the economic consequences of the intensifying trade fight between the Trump administration and traditional American allies like Canada.
Earlier this month, the US imposed significant tariffs on steel and aluminum imports from other countries, including Canada, Mexico and the European Union. Washington is now threatening to introduce more duties – this time on automobiles.
The move has infuriated allies and has prompted them to retaliate with tariffs of their own on U.S. imports.
On June 15, US President Donald Trump went further by slapping a 25% tariff on up to US$50-billion worth of goods from China. The tariffs are set to take effect July 6 and would push the world’s two largest economies closer to a trade war.
Throughout this turbulence, a separate economic sting related to uncertainty has persisted as Canada, Mexico and the US have largely stalled in their efforts to renegotiate the North American Free Trade Agreement.
As experts try to get a handle on the economic impacts, here are some telling numbers about the deepening trade battle:
• 0.2 percentage points – the reduction to Canada’s growth in gross domestic product in 2019, if NAFTA falls apart and 3.8% tariffs are imposed across the board, according to Scotiabank’s recent report.
• 0.4 percentage points – the reduction to Canada’s GDP growth in 2020, if NAFTA falls apart and 3.8% tariffs are imposed across the board.
• 0.2 percentage points – the reduction to Canada’s GDP growth next year, if NAFTA talks extend past the second quarter of 2019 and tariffs on steel, aluminum and autos are in place, Scotiabank estimates.
• 1.8% – the size of the contraction for the Canadian economy in 2020 if the US launches an “all out” global trade war with an average of 20 per cent tariffs across the board with all partners, according to Scotiabank.
• 3.1% – the share of Canada’s total merchandise exports affected by US steel and aluminum tariffs, according to data provided by Export Development Canada’s deputy chief economist Stephen Tapp.
• 0.7% – the share of Mexico’s total merchandise exports affected by US steel and aluminum tariffs.
• 0.4% – the share of the EU’s total merchandise exports affected by US steel and aluminum tariffs.
• 0.1% – the share of China’s total merchandise exports affected by US steel and aluminum tariffs.
• US$12.4 billion – the value of Canada’s steel and aluminum exports to the US in 2017, Tapp says.
• US$2.9 billion – the value of Mexico’s steel and aluminum exports to the US in 2017.
• US$7.7 billion – the value of the EU’s steel and aluminum exports to the US in 2017.
• US$2.8 billion – the value of China’s steel and aluminum exports to the US in 2017.
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