Today, on the second day of the U.S.-Canada trade war, The Hub’s publisher Rudyard Griffiths and editor-at-large Sean Speer speak with leading economist Trevor Tombe from the University of Calgary. Trevor breaks down the economic impacts of Trump’s tariffs on the economy as a whole and on specific Canadian industries, and explains geographically where import duties on Canadian goods will hit the country hardest.
You can read Trevor’s article here.
The following is an automated transcript. If you are quoting from or referencing this episode, please refer to the audio to verify.
RUDYARD GRIFFITHS: Welcome Rudyard Griffiths here, the publisher of The Hub. Well, we’re kicking off a new video series here at the hub. We’re calling it Trump’s trade war. Each day we’re going to provide you with a 10 to 15 minute video featuring our best analysis and insights on this fast developing story with big consequences for Canada and for our economy. We’re extremely fortunate to have on our very first program, day two of Trump’s trade war, Trevor Tombe. He’s our resident economist here at The Hub, writing and commenting on all kinds of great stories and goings on in the world of economics. He joins us from Calgary, and my co host, Sean Speer, co founder of The Hub, is also on and will be a regular part of this program, providing his analysis of the politics and policy of tariffs and our retaliatory maneuvers in the days and weeks to come. Gentlemen, great to have you both on the program.
SEAN SPEER: Great to be here. Thanks for having me always.
TREVOR TOMBE: Great to be with you and Trevor.
RUDYARD GRIFFITHS: well, Trevor, I want to start with you because you’ve got a column that caused me to put down my morning coffee and dig in deep. You’re predicting here 600,000 jobs potentially on the line. Give us your analysis. How did you arrive at that number?
TREVOR TOMBE: That’s right. So I wanted to get a sense of how we should think about a 25% tariff levied by the United States on goods exports from Canada, 10% on energy that covers about 80% of the total amount of what we sell to the Americans, right? So services are not really covered here, but almost everything that we sell is going to be hit with one of these tariffs, and how that affects Canada depends on how it affects American buying decisions, right? This is not a tax on Canadians. It’s a tax on Americans who opt to purchase from Canadian suppliers. And a lot is going to depend on how long these tariffs last. That’s a big open question. A lot might also depend on investment levels that will be affected by other policy decisions in the United States. But if us, demand drops, just to illustrate, in proportion to the tariff, which is a common initial assumption that many make when doing quick analysis of this kind, that translates into about $160 billion in lower demand for Canadian goods, 100 billion in direct reductions, and then $60 billion in lost output from suppliers of exporters and suppliers of suppliers of exporters and so on up the supply chain. So that’s quite considerable. It’s about three cents on the dollar of everything that we produce, right across the board. And if that itself translates into a kind of proportional reduction in jobs, then that’s where you get about the 600,000 job losses. And you know, this is a quick illustration of how we should think about tariffs of this magnitude. It’s also consistent with more sophisticated work done by others, including team of Scotia Bank economists that also project by the end of the year about a three percentage point rise in the unemployment rate for Canada if these tariffs are to last, and that also roughly translates into about 600,000.
RUDYARD GRIFFITHS: Sean, why don’t you come in with a question for Trevor?
SEAN SPEER: Yeah, I was going to say Trevor, for those of us who have spent most of their lives with essentially unimpeded trade between Canada and the United States just help refresh our understanding of how tariffs come to influence the decisions of buyers and sellers. Put yourself for a minute in the shoes of that American customer in the face of a 25% tariff on Canadian supplies, what are the options or trade offs that he or she needs to think about, and how does that ultimately produce the effect that you just outlined?
TREVOR TOMBE: That’s a great question. So this will be a tax levied on American importers, and so most American buyers walk into a local store, a Walmart, what have you, and purchase something off the shelf that’s from Canada. It’s not like they are then subject to a tariff as an individual, but that the wholesaler or Walmart itself, or whoever actually imported the item would have paid the tariff and then very likely passed that through to customers in the form of a higher price that those Canadian goods would see, and That makes it at the margin a little more attractive for the buyer to think about an alternative, not just an American supplied item, but maybe something from Europe or another country, right? It’s putting Canadian supplied items at a price disadvantage, and 25% is quite considerable, so this is levied on the value. Of that item that’s brought across the border. And so roughly speaking, unless the importer or the retailer is going to eat some of it, or the Canadian producer maybe taking a haircut on the price that they charge. And we may very well see that in many sectors, that price that consumers in the US face will be about 25% higher, and that takes time for them to think about alternatives, substitute into other things, and that’s why the effect is not going to be immediate. It will take many months, potentially all the way through to the end of the year and slightly beyond, if these tariffs left for the full effect to be felt.
RUDYARD GRIFFITHS: Trevor, I want to, I want to pull up some analysis, Trevor, that you’ve done on a sectoral basis, because I think it’d be really helpful for our viewers to understand how this breaks down in terms of Canadian economy, and in a sense, how disproportionate the effects will be for specific industries. So we’ve got that up on the screen for our audience to see. If we can go full screen on that, you can see it now too. Trevor, can you walk us through this graph? What do you what information are you sharing here?
TREVOR TOMBE: That’s right. So this looks at which sectors are going to be potentially hit hardest by lower us demand for Canadian goods. Not all sectors export as much of their output to the United States as others. And so this is looking at how much as a share of output, would a 25% drop in US demand mean, and for vehicle manufacturing overall, it’s about a 15% reduction in total output. And for many sub sectors within that, it can be as high as 25% and that’s, I think, a conservative estimate here as well, because there are other disruptors to how vehicles and other manufacturing sectors are even jointly produced between plants in Canada producing items alongside plants in the United States. And so for certain product lines, you might see a complete shutdown of activity in those areas. Then other manufacturing. It’s about a 10% reduction resources in agriculture, about seven to 8% reduction in demand, a good chunk of which is because of lower demand up the supply chain. You know, if exporters in Canada that use agricultural inputs. Think about food manufacturers in Canada, they might be then purchasing less from crop and animal producers. In Canada, there’s also a modest but just because of its size, it translates into a big economic implication. Here, services also see a contraction, because even if you’re not an exporter, even if you’re, you know, just an accountant, you know, some of your clients might be exporters, and there will be a lower demand for your services as well up the supply chain. And so this just gives us a sense of how things break down across the economy, and that can also then translate into how things break down across the country, regionally, because manufacturing and resources in agriculture are concentrated differently in different areas.
SEAN SPEER: Trevor, can you contextualize the 25% tariff for our audience? How does it compare, say, to the tariff rate that Canadian goods are subject to in other countries with whom we don’t necessarily have a free trade agreement. And how does it compare, say, to the pre NAFTA era, before Canada had free trade with the United States.
TREVOR TOMBE: This is much higher than the tariffs that we’re used to even pre NAFTA. I’m gonna perhaps get the exact number wrong here. We’ll get you the right order of magnitude that the average tariff rate between Canada and the United States was a little under 10% so like a higher single digit share. And so this is multiples of that. And so for a comparable period, to see tariff at the US on the order of 25% you do have to go back prior to, I believe, prior to the Second World War, around the smooth Holly tariff time in the 1930s so this is a moment that doesn’t have any modern precedent. Trade historically was very different than today. We would concentrate into certain product lines, export those, they would concentrate in others. Whereas right now, most of our trade about $4 out of every five that is traded between Canada and the United States is intermediate inputs and capital goods, not things that you and I buy, but things that businesses make to produce yet other things. And so the tariffs are going to have a much bigger economic implication now than they did historically. But yeah, it was very different than even pre NAFTA, and I should say pre Canada, US Free Trade Agreement as well.
RUDYARD GRIFFITHS: Trevor, final question for you. We want you to unpack the last really terrific graph in your article. Today we’ll go full screen on that for you and our viewers. It’s showing the potential employment loss across the country. You’ve kind of created a heat map here, especially. With some breakouts for some particular regions that you think could really be affected in terms of underemployment and unemployment. Can you walk us through the map? Yeah, absolutely.
TREVOR TOMBE: So every census that we take does provide, at the census division level, which breaks the country up into many, many sub component parts, what employment looks like in each region of the country by very detailed sector. So what I’ve done here is asked, well, for each of these sectors, how much of their output is exported to the United States? How much might total production decline if US demand falls by the amount of the tariff and how much would that translate into employment losses? So effectively, it’s just projecting onto the country as a whole, where those 600,000 jobs might be located. I think there’s a couple important takeaways here. First, all, regions of the country are going to be affected. There’s not a single province that doesn’t have areas within it that are exposed to potential job losses to a considerable amount the territory is less so you know, they’re just not as tied into exports to the United States as provinces are. But among provinces, the pain is distributed quite a bit, but the areas with the most potential losses are found in southern Ontario, kind of outside the GTA, kind of where a lot of manufacturing activity occurs. And in southeastern Quebec, think about the regions just north and east of Sherbrooke, for example, those are going to be the areas that have the biggest hit. This is relevant, especially as governments are thinking about measures to support individuals. You know, our employment insurance program, for example, is already something that is regionally targeted, and governments can extend benefit amounts for people living in certain regions. And so we might see that as one response by the federal government. And then, of course, with Ontario going or in an election campaign now, ridings in that southern Ontario, outside the GTA area, being particularly hardest hit, that might have some political dynamics that might be interesting to watch over the next couple of weeks.
RUDYARD GRIFFITHS: Sean, why don’t I give you the last question to Trevor, and then we’re going to let him get on with, no doubt, a very, very busy day at the University of Calgary.
SEAN SPEER: Trevor. Great analysis. As always, up until now, we’ve been focusing mostly on the economic effects of the American tariffs on Canada. We haven’t yet spoken about the impacts of Canada’s retaliatory tariffs. I know we don’t have a lot of time left with you, but but maybe in in broad strokes, give our audience a sense of the incremental effect of Canada imposing its own tariffs on on Canadian exports into the United States.
TREVOR TOMBE: Right? Great question. So Prime Minister on Sunday announced now I’m getting my days blurred. Over the weekend, I announced a two stage tariff response. This will be taxes levied on Canadian individuals and businesses who import from the United States, starting with tariffs on $30 billion worth of imports on Tuesday. Now that’s that’s not a large share. It’s about 6% of the total that we purchase from the United States, and most of it will be in the form of consumer goods, most of that on food items. So roughly 1/5 of our food purchases from the United States will be subject to these initial retaliatory tariffs of 25% and then in a few weeks time, that will grow to cover about 30% of what we buy from the United States, a little over $150 billion and the goal of this is, the goal is not to tax Canadians. The goal is to have American producers suffer a loss in in demand, but you know, at least initially, it looks like that effect is going to potentially be quite minimal. We’re just a small market relative to us output. And some preliminary work that I’m putting together right now suggests that the effect of this for the most exposed us state, which, by the way, is Wisconsin, is equivalent to about point 1% of their over economy and almost every other state is in the second decimal place. So this is unlikely to be a set of retaliatory measures that does meaningfully exert economic pressure on the United States. So I think I’d view this first phase as as more symbolic than truly economic and and I expect, although the details are not yet known, that second phase of even the 100 and 50 billion only minimal possible implement. Communications on the United States, and so that’s where I do worry about where things go from here as a small economy, it’s just much more difficult for us to take steps to place economic pressure on American producers. So it does limit our options. That’s why I tend to favor efforts to improve the resilience and strength of the Canadian economy in the face of of these tariffs, we want to make sure that in the worst case scenario where America does maintain these tariffs for a long period of time, that we are still an attractive economy to invest in. That means taking steps to improve policy in so many other areas, and so I think that that’s where we will hopefully turn, but at least at the beginning, these tariffs are largely going to be felt by consumers in the form of higher prices.
RUDYARD GRIFFITHS: Well, thank you Trevor for finding some time and again, a very busy day, busy weekend for you to come on The Hub. We so appreciate all of our readers, viewers. So appreciate your considered analysis and insights. So thank you again for coming on the program.
TREVOR TOMBE: Thank you. It’s a pleasure.
RUDYARD GRIFFITHS: Well, Sean, I want you to stick around for a sec because you’re our politics guy, our policy guy. You’re going to talk a little bit with me about what you think this could all mean for Canada in terms of our political response, and the dynamics that you’ve seen play out since Trump’s big news, that rocket that he sent into the air on on Saturday afternoon.
SEAN SPEER: Yeah. What extraordinary analysis from from Trevor, Rudyard, everything from helping us understand the magnitude of these tariffs in some context and their potential impact, both regionally and sectorally. And then his point at the end Roger, which I thought was was important for audience to hear just the inherent limits of matching these tariffs in a way that induces some kind of impact on the American economy, and in turn, Washington and and so in that sense, Rudyard, I think we’re we’re stuck in a pretty tough spot. The cold logic would dictate that we follow Trevor’s advice and focus primarily on trying to improve the economic conditions in our own country. But if you’ve spent any time following the Canadian media over the past few days, it’s pretty clear Rudyard the incentives are for politicians are tilted precisely in the opposite direction. We’re living in a moment of high emotion, and my fear is that we don’t take Trevor’s advice and instead, we plunge ourselves deeper into a trade war and and and even further into the type of economic nationalism that did Canada’s economy harm in the 1960s and 1970s I think we’re going to see a lot of really dumb policy in the coming days, which is only going to compound the economic effects of of this trade war.
RUDYARD GRIFFITHS: Final question, Sean, we’re hearing that the Prime Minister did meet with opposition leaders yesterday. It was not on his official schedule, but it is being reported out that Pierre Poilievre, Jagmeet Singh and the bloc leader were called in for a high level discussion. What do you think is going on here? Obviously, Pierre Poilievre wants parliament to return. The prime minister at his press conference late, what was that Saturday indicated that, no, that’s not going to happen. We’re going to run a liberal leadership race. Mark Carney was on the BBC this weekend, seemingly very confident, talking about almost the inevitability that he will be Prime Minister Come Come March. I don’t know, Sean. Should we have any hope here that national interest could trump partisan politics? Given you know, this acute threat that the country faces.
SEAN SPEER: yeah, oh, man, it, it is tough, isn’t it? Rudyard the each of the different parties have their own incentives here that I think diverge with the national interests. For the liberals, it’s about trying to, effectively, I think, create a wedge vis a vis the conservatives on implementing a post leadership emergency relief package. You saw finance minister Dominic LeBlanc, for instance, accusing the Conservatives and to lesser extent, the New Democrats, of putting the country at harm by threatening to bring down the government at the first opportunity for the conservatives, it’s a complicated mix of incentives, it seems to me. On one hand, Pierre Poilievre has been, have been careful not to be perceived as as being partisan when it comes to defending Canadian interests vis a vis the United States. He has, you know, effectively taken on the. Mantle of Captain Canada, as as our other political leaders have. On the other hand, he doesn’t want to preclude himself from being able to criticize the Trudeau Government and its handling of these issues. You know, it shouldn’t be lost on people that the government effectively waited from November 26 when Trump first muses about tariffs, until seemingly this week, to start to formulate a response. So I think everyone is kind of in a tough jam here right now, Rudyard when it comes to politics, and everyone is trying to sort of manage the internal, inherent kind of tensions that they face in on one hand, being seen to be above politics, but on the other hand, not losing sight that they all have their own political interests. Yeah.
RUDYARD GRIFFITHS: Well said. Well, listeners, viewers, thank you for tuning in. We’re going to do this each day of this trade war. The Hub is committed to producing this program. We’re calling it Trump’s trade war. It’s day two today. We’re going to be with you throughout this crisis, hopefully providing you with access to the really spot on analysis of our best thinkers and contributors at The Hub, like Trevor Tombe and yes, like Sean Speer. And also, just in the spirit of helping Canadian businesses, we got to help each other out. The Hub is making available right now a complimentary 10 person group subscription for it registered Canadian businesses, so that they their employees, their leadership teams, can be up to speed on all the analysis. The more informed we are, the more information we have, the smarter our response is going to be. So this is our small way at the hub of trying to support Canadian businesses. I think if we all rally around and support each other, we’re going to get through this and we’re going to come out stronger than ever. Sean, thanks for coming on the program, buddy. We’re going to do this again. I like the vest, by the way, to end on a lighter note, I like that looks good.
SEAN SPEER: It’s part of the new uniform. We’re gonna have to send them to our guests in advance so they so that they adopt the uniform as well.
RUDYARD GRIFFITHS: Yeah, just check the label. Make sure it’s made in made in China. Okay, I don’t want that better not be Colorado, or, I don’t know, Ohio. JD Vance territory. No, we can’t have that here at The Hub. Thank you, listeners, viewers, we will tune in tomorrow morning with the next installment day three of Trump’s trade war. I’m Rudyard Griffiths, publisher, The Hub.