How Tariffs Could Impact Canadians

The U.S. may impose tariffs on Canadian goods starting March 4, including a 10% tariff on oil and 25% on other imports, with additional tariffs on aluminum and steel starting March 12. If this happens, consequently, Canada plans retaliatory tariffs on $155 billion worth of U.S. products.

Tariffs are taxes on imported goods. If the U.S. imposes tariffs, companies may pass on higher costs to consumers. This could increase prices for products like beef and vehicles. Tariffs could furthermore disrupt supply chains, especially in industries reliant on cross-border parts, such as automotive manufacturing.

Economic Ripple Effects

Economically, tariffs could weaken the Canadian dollar, hurt export-driven industries, and lead to layoffs or closures. A 25% tariff on steel and aluminum could shrink Canada’s GDP by 3.4-4.2%. Wow, pushing the country into a recession. Inflation may rise, and as a result, the Bank of Canada might lower interest rates to mitigate growth slowdowns.

Canadian investors should prepare for uncertainty. Tariffs could hurt sectors like manufacturing, petroleum, and aerospace. Discretionary sectors like travel and retail could also suffer if consumers cut back spending due to higher prices.

A Visual Explanation

I found the following graphic really interesting in explaining how tariffs work their way through the economy.

What This Means for You and Me

So, what does this mean for you or me? The variable rate may decrease due to the Bank of Canada wanting to spur on the economy. Additionally, the government may introduce quantitative easing. This would lower the fixed rates further.

Indeed, we’re in uncharted (I mean, Trump..) territory here. Your guess is as good as mine as to what will happen over the next few weeks/months.

BUT, I’ll hazard a guess. We’ll have a decrease in the variable rate on March 12.

Big Banks’ Predictions

Below is what the big 6 banks are now assuming the BoC prime rate to be over the next two years.