In this episode of Trump’s Trade War, The Hub’s publisher Rudyard Griffiths speaks with Livio Di Matteo, professor of economics at Lakehead University.
To read Livio’s full analysis, click here.
Key points:
- Uncertainty is crippling the economy: Di Matteo emphasized that the constant back-and-forth on tariffs has created significant uncertainty, which is already impacting consumer spending and business decisions. Di Matteo commented that this has had a major impact on the stock markets, noting that the recent 30-day reprieve on tariffs for Canada and Mexico was likely a response to market volatility. He warned that this uncertainty could lead to a recession regardless of whether tariffs are ultimately imposed.
- Potential economic impact comparable to past recessions: Di Matteo compared the potential economic impact of the trade war to past recessions, noting that while it is unlikely to reach the severity of the Great Depression, the effects could still be significant. He cited Bank of Canada and Scotiabank forecasts predicting a decline in real GDP growth of 2.5 percent to 5.6 percent, if tariffs are imposed. According to him, we are looking at something significant, but not on the scale of the Great Depression.
- Need for economic diversification: Di Matteo argued that Canada must take steps to reduce its reliance on the U.S. by boosting internal trade and expanding trade relationships with other regions, such as Asia and Europe. Di Matteo argued for more of an effort to be made in accessing other markets, suggesting that Canada could explore closer economic ties with the European Union (EU), similar to Norway’s relationship with the EU. He stressed that diversification is essential to building economic resilience and avoiding future vulnerability to U.S. trade policies.
As the Trump administration’s trade war with Canada enters its 33rd day, the economic uncertainty continues to weigh heavily on both sides of the border. In a recent episode of Trump’s Trade War, hosted by Rudyard Griffiths, publisher of The Hub, Livio Di Matteo, professor of economics at Lakehead University, provided a detailed analysis of the potential economic impacts of the trade war and compared them to past recessions. Di Matteo highlighted the uncertainty created by the Trump administration’s erratic tariff policies, the potential for a significant economic downturn, and the need for Canada to diversify its trade relationships to reduce reliance on the U.S.
Di Matteo’s analysis underscored the damaging effects of the Trump administration’s erratic tariff policies on both the U.S. and Canadian economies. The constant threat of tariffs, followed by temporary reprieves, has created a climate of uncertainty that is already impacting consumer behaviour and business investment. “This has had a major impact on the stock markets,” Di Matteo said, noting that the stock market’s negative reaction to the tariff threats likely prompted the recent 30-day reprieve for Canada and Mexico. However, he warned that the uncertainty itself could lead to a recession, even if tariffs are never fully implemented.
“Consumers have already been pulling back on their spending,” Di Matteo commented, pointing to a decline in home sales in major urban centres as evidence of the economic slowdown. He argued that the uncertainty surrounding tariffs is causing both consumers and businesses to delay major decisions, which could further exacerbate the economic downturn.
Di Matteo provided a historical perspective on the potential economic impact of the trade war, comparing it to past recessions in Canada. He noted that while the Great Depression saw a 9.5 percent drop in real GDP in 1932, the current forecasts from the Bank of Canada and Scotiabank suggest a more moderate decline of 2.5 percent to 5.6 percent in GDP growth if tariffs are imposed. “These are all potential ranges,” Di Matteo said, emphasizing that the trade war is unlikely to cause a depression-level economic collapse but could still result in a significant recession.
Di Matteo also highlighted the interconnectedness of the U.S. and Canadian economies, particularly in the resource sector. He noted that many of Canada’s key exports, such as potash, oil, and electricity, are critical inputs for the U.S. economy. Imposing tariffs on these products would harm both countries, further complicating the economic outlook.
Looking ahead, Di Matteo argued that Canada must take proactive steps to reduce its reliance on the U.S. as a trade partner. He suggested that boosting internal trade and expanding trade relationships with other regions, such as Asia and Europe, could help build economic resilience. “We need to make more effort to access other markets,” Di Matteo said, pointing to the EU as a potential alternative market for Canadian goods.
Di Matteo also emphasized the importance of diversifying Canada’s trade relationships to avoid future vulnerability to U.S. trade policies. “We’re going to have to [explore] alternate structures to generate resiliency for the economy,” he said, suggesting that Canada could pursue a closer economic relationship with the EU, similar to Norway’s arrangement. “We probably should stop, in a sense, responding politically, verbally every time something comes up. The best thing we can do is to go silent and plan for every contingency.”
Generative AI assisted in the production of this story. If you are quoting from or referencing this episode, please refer to the audio to verify.
