President Donald Trump’s intention to tax $60USD billion of Chinese imports could help Canadian retailers by cutting back on purchases made by Canadians in the United States. But a real trade war between the two superpowers would ultimately hurt the Canadian economy, experts say.
According to the Retail Council of Canada, US taxes would increase the price of Chinese goods sold in the United States, including electronics, which could lead to more Canadians shopping at home.
The United States purchases the equivalent of US $500 billion worth of goods from China each year, from toys to shoes to cell phones. The prices of these products could leap due to the imposition of taxes.
A list of products in two weeks
It is not clear for the moment what sectors will be affected; a list of products should be provided in two weeks. US officials have announced they will try to minimize the impact on US consumers by targeting corporate-owned goods, including computers, computer products, industrial machinery and aircraft parts.
But even if they do not impose taxes on consumer-bought Chinese products, companies could still pass the bill to customers, according to Council vice-president Karl Littler.
Falling demand for Chinese products may also help Canadian retailers get better prices from companies in China that will try to offset their losses.
In addition, to avoid tariffs, multinational retailers, including Costco, Best Buy and Walmart, could send their products directly to Canada rather than shipping them to the United States.
The president of the Canadian Association of Importers and Exporters, Joy Nott, also believes that Americans may be tempted to buy their products in Canada.
“It will not be in waves, but I think it will level cross-border activity,” she said in an interview.
Canadian products rather than Chinese
Canadian products that are similar to Chinese goods may also be preferred by US buyers.
A day after Donald Trump’s announcement, China announced that it could instead impose taxes on pork, apples and steel pipes.
Further retaliation by China could open the door for Canadian exporters to replace expensive US goods, particularly in agriculture.
This could help Canadian pork exporters. We could end up replacing the United States as China’s supplier if China imposes restrictions on US products.
CIBC Chief Economist Avery Shenfeld
Canada could suffer as well
However, a warming of tensions between the two countries could slow down the global economy, according to Shenfeld.
Given that Canada is a country that depends on commodity exports, a weaker Chinese economy would end up hurting its economy, as there would be fewer sales and lower raw material prices, the economist said. Chief Executive Officer of the Conference Board of Canada, Craig Alexander.
“Taxes as they are advertised are a bad thing, but what we are most concerned about is how it could get worse.”
If that happens, there is a risk that the entire global trading system will collapse, said Yves Tiberghien of the Asia Pacific Foundation of Canada.
“If the trading system really collapses, then we will suffer massively,” he said in an interview from Washington.
Mr. Tiberghien predicts that the Chinese will not let go. As a result, the US government will be distracted by China, which could benefit current negotiations on the North American Free Trade Agreement (NAFTA).
The United States has recently softened the tone for Canada, exempting it and Mexico from tariffs on steel and aluminum, and compromising on auto in the NAFTA talks.
“So the pitch is completely different from last week.”