Front Burner - The Trump tariff trade war and you

Episode Date: February 3, 2025

On Saturday, Prime Minister Justin Trudeau announced that the federal government would hit back against the U.S. after President Donald Trump launched a trade war against Canada.Starting Tuesday, the U.S. is imposing 25 per cent tariffs on most Canadian goods and 10 per cent on energy products in particular. In response, Trudeau said that the federal government would levy retaliatory 25 per cent tariffs on $155 billion worth of U.S. goods.CBC senior business reporter Peter Armstrong on the consequences of a Canada-U.S. trade war, and what these tariffs might mean for the average Canadian.For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts

Are you looking for a little upskilling? A little boost to your career? A little something-something to show the world your current? Well for that you'll want the big leagues, the University of Alberta. It's a little known fact, and no small feat, that the U of A offers flexible and engaging continuing education experiences big time. So if you're a professional looking for a little short-term learning with long-term results, put a little U of A on your resume. Visit uab.ca slash con ed. This is a CBC Podcast. Hi, I'm Jonathan Mopetse, in for Jamie Poisson. That is the sound of hockey fans in Ottawa booing the American national anthem on Saturday

night over what the editorial board of the Wall Street Journal has called the dumbest trade war in history. Across town, Prime Minister Justin Trudeau had a response of his own. Tonight I am announcing Canada will be responding to the U.S. trade action with 25 percent tariffs against a hundred and fifty-five billion dollars worth of American goods. This will include immediate tariffs on 30 billion dollars worth of goods as of Tuesday, followed by further tariffs on $125 billion worth of American products in 21 days' time to allow Canadian companies and supply chains to seek to find alternatives.

This of course stems from Donald Trump's decision to hit Canada with 25% tariffs on most goods and 10% on the energy sector. It's hard to overstate the impact all this could have on normal Canadians, but we're going to try and bring some clarity to that today. I've got CBC senior business reporter Peter Armstrong with with me. Hey, Peter, thanks for joining us. Thanks for having me. Now, Peter, I know we've been talking about the potential of this happening, of Trump launching a trade war against Canada for weeks now, but just how unprecedented is this? Like give it to me straight, how bad is the situation? It's pretty bad and it's pretty unprecedented. If enacted, this would be the biggest series

of tariffs introduced by the United States since 1861. The economy was wildly different back then. We're talking about, if demand falls in proportion to the tariffs, like $160 billion hit to the Canadian economy. Already the economy is pretty weak and it feels awful. This is going to feel orders of magnitude more awful than that.

So there's a lot to go over here. So let's try to take this in stages if we can, Peter. First, let's talk about what the impact of the U S tariffs will be on Tuesday morning. Everything that Canadians sell into the U S will get hit with a 25% tariffs, except for oil and gas, which is facing a 10% levy.

What do we sell to them? Like what sectors of the economy will be most affected? I mean, to say just about everything, frankly, kind of understates it. You know, if you go through it sector by sector, energy of course is the big one. It's like 30% of Canadian exports.

I think we sold $120 billion worth of crude oil alone to United States last year. Then there's like a category called machinery, which is deeply embedded into the auto parts industry and thus the auto industry, precious metals. You know, like Canada produces a specific kind of nickel, for example, plastics out of our own refining capacity, lumber,

of course, you know, we spent all these years talking about the softwood lumber dispute, not because it was such a bad dispute, but because it was so integral to both countries. I want to come back to the auto sector in just a moment. You mentioned that was a big one. Um, but will, like, will Canadian manufacturers,

will Canadian businesses feel the effects of these tariffs right away, or will it take some time for them to work their way through the economy? Uh, yes to both. Uh, they will feel them right away and they will feel them in increasing waves as they work their way into the economy. Like remember, a tariff is just a fancy word for tax. So they're saying your product is going to get taxed at 25% as soon as it crosses the border and the importer, the person or company

or companies that are buying your product are now going to have to pay the US government this extra levy. And fundamentally, and this is the part that sort of gets lost in the shuffle here, demand, demand for Canadian products will fall and as demand falls, you'll see fewer shifts, you'll see fewer activity, you'll see way less business investment, you'll see much less hiring, you'll see eventually layoffs. And, and so that's what I mean. You'll see the impact, they'll feel it on day one, but as you scale this out, it gets worse with

like literally every week that goes by. Let's break this down into even further detail and try to make it really as tangible as possible for folks as we can. So let's say an American company buys a $100 part from a Canadian manufacturer with the tariff now in place that American company would need to pay an additional $25 to the U S government. Right. Where would that American company get

that extra $25? Let's say. Right. Where would that American company get that extra $25? Let's say I'm selling you some steel and you need it to make a machine part. And you're going to sell that to the auto parts guys up in Michigan or in Southwestern Ontario. But our relationship is just, I've got some steel that I bought from a mine up in Northern Ontario. I've hired a firm in Hamilton to roll it and I want to sell it to you. Well now it's going to be 25% more.

You've got to pay that to your government. And so you come to me and you're like, Armstrong, listen, I really like you guys got the best deal. We love your steel, but I can't afford this 25% tariff. Make me a deal. Is there a way we can try to come to terms? Cause man, I don't want to go talk to those guys in whatever other country that makes the steal.

They're no good. They're further away. It's harder. I got to ship it in. Let's come to a deal. And I might say, you know what? Sure. That that makes sense.

Let's split it or you take 80%. I take 20%. Let me drop a little bit. Um, but that's going to hit my bottom line. But then if that's not enough for you, you might end up going to someone else and getting that steal from them and using that to make your part. And then all of a sudden the demand for my product isn't a little bit less, it's gone. And so what do I do?

So where does that money come from? Sort of depends on what happens. So it's not, it's not as simple as the cost of the tariff will be passed on to the consumer. That may be part of it, but manufacturers here in Canada will kind of have a series of difficult decisions to make about whether or not to eat some of that tariff, whether or not to reduce costs in different ways, basically. Yeah. And listen, the point is everybody's going to get squeezed.

The consumers are too. I want to go back and talk about the auto is everybody's going to get squeezed. The consumers are too. I want to go back and talk about the auto sector for just a moment. I've been hearing and reading different people who work in the sector saying that all production could grind to a halt within the week. How would that happen and what kind of impact would that have? Uh, the auto industry has spent 75 years building this incredibly integrated, incredibly efficient system that spans across North America. You've got parts being, you know, the steel from

Canada that get made into a part in Mexico that gets shipped up to a plant and in, you know, North Carolina to, and it just like in, you know, North Carolina. And it just like the, you know, the, the old adage is that the average car crosses the border between six or seven times over the course of its production. And they have what's called just in time delivery. So none of these plants have massive storage facilities where they, they sit on a ton of product and this stuff is getting used as it arrives. And anytime, like when we talk

about a strike or a natural disaster or any of these things, these auto industries that are so integrated and so dependent on that just in time delivery, get in real trouble real fast. And now all of a sudden we're looking at a process that will just be completely derailed very quickly that will just be completely derailed very quickly on day one. You know, Brian Kingston, who's the head of the Canadian Vehicle Manufacturers Association, he was on with Rosemary Barton last night, and his line that I wrote down was, this will have a very immediate and very serious impact on the supply chain. We'd be looking at production stoppages, increases in prices across the board, and potential job losses, not just in Canada,

but across North America, because this supply chain is so tightly integrated. So if American manufacturers cannot get inputs from Canada or Mexico, they will have difficulty producing vehicles as early as next week. And talk about that a bit more, like the supply chain, the knock-on effects of the auto industry, basically grinding to a halt.

That whole system is dependent on all of it working seamlessly. And if you're not getting the one part from Mexico to build the engine in North Carolina, then the car isn't getting assembled in Windsor. And if the car is not getting assembled in Windsor, then there will be layoffs. They'll say, listen, guys, if we're not getting these parts, we're going to go down to two shifts or three shifts or whatever it may be. And people will go home. Uh, and that will be felt right out of the gates.

And that's not just a problem for the auto sector, like, like, like, like Peter, the auto sector is a substantial part of the Canadian economy, is it not? So, you know, not to doom cast here, but if the auto sector basically grinds to a halt in the next few days or so, you know, what's going to happen to the Canadian economy?

You know, the, one of the stats that I'm forever wowed by is the most common job in Canada among Canadian men is truck driver. So a lot of that is driving car parts from the plant to the automotive manufacturing center, and then moving the car. Like all of that chain depends on guys driving these trucks around and moving them.

If they're not moving those parts and you're not getting them to the plant, then a lot of those truck drivers get laid off. Like the auto parts factories that exist throughout Southwestern Ontario, but they also need energy to power this. They need accountants and lawyers. They need, you know, you think about when, when

COVID crashed into the economy, one of the guys I check in with the most still, cause I think he's an amazing bar crashed into the economy, one of the guys I check in with the most still, cause I think he's an amazing barometer of the economy is a guy who runs a dry cleaner in the path system underneath the, the Toronto's downtown. Uh, he has been clobbered and is only just now barely recovering from those years of deprivation during COVID when everybody went home.

This is going to be something not quite on that scale, but we're going to see all of these other people that depend on the core industry getting hit. And they have nothing to do with this. They sell dry cleaning or sandwiches or car washes, whatever it may be. They've got nothing to do with international trade and yet their business will suffer as a result. Are you looking for a little upskilling? A little boost to your career? A little something something to show the world your current? Well for that you'll want the big leagues, the University of Alberta.

It's a little known fact, and no small feat, that the U of A offers flexible and engaging continuing education experiences big time. So if you're a professional looking for a little short-term learning with long-term results, put a little U of A on your resume. Visit uab.ca slash con ed. Struggling with debt? Help is available. Discover reliable solutions to help you get back on track.

Visit canada.ca slash debt-solutions for support you can trust. A message from the Government of Canada. Let's shift our focus westward a little bit. I wanna talk about the 10% tariff on Canadian oil and gas. What impact will that have here in Canada? I mean, it's terrible.

This is awful. It is the engine that drives the Canadian economy. When they have to get, start facing this 10% tariff, there's a really interesting question as to what will happen. You know, there are, um, there are refineries in the Midwest and a couple in Montana that rely exclusively on Alberta oil. That stereotypical image you have in your

mind of a refiner is not somebody who's going to say, ah, we'll just keep chugging along and we'll eat that 10%. It won't make a huge difference. 10% is a massive difference in that business. Uh, so what, what happens? Will the refiners produce a little bit less gasoline? That's one solution to this.

Well, that means they're going to not just, uh, have to pay a little bit more for the Canadian oil, but they're going to import a little bit less. And that's going to have an impact on pumping and production in Canada. The demand side of this, the longer term demand erosion here is where you can get into real trouble real fast. And if there is this one-time hit to prices, but a long-term hit to demand, that weakens Canada's economy for the foreseeable future. And as we've been talking about for weeks now, we're not sure what it takes to end these tariffs because the target on that keeps changing. When the steel and aluminum tariffs were put in 2018,

it ended up taking a year before we finally got an exemption on that. And that exemption largely came not because the Canadian delegation was down there saying, you're not supposed to be able to do this under the rules. It was American businesses going to President Trump at the time and saying, this is going to put me out of business because I can't afford to

pay this, this, this tariff, this tax on the steel I use to make whatever it is. Nails for construction, for example. And that was what finally got Canada the exemption. And, and, and so what does this mean for the, the, the oil industry? Nothing good. And that means nothing good for the Canadian economy.

Okay. So we do not know how long these tariffs will last for. Trump has said he's not looking for concessions and has threatened a counter attack to the retaliation announced by Trudeau on Saturday. But put it together for me, what does this do to the Canadian economy and people's livelihoods in

the short term, medium, and long term? So the context for that, I think really matters that, you know, the Canadian economy isn't in a great place right now. You've seen GDP slow and flatten out over the last quite a while. If you look at it on a per capita basis, the Canadian economy has been contracting for six or

seven straight quarters. Now it's not in a good place. Unemployment is rising. Uh, we're just not adding enough jobs to keep up with population. The, the economy is in a soft spot. And what we've been saying throughout these last six months is that it wouldn't take very much at all to nudge the Canadian economy into a recession. Markets are going to react to this.

And markets have shrugged this off because they believed this wasn't going to happen. Now, it looks increasingly likely that it will. Markets are going to react. Currency is going to react even more. Peter, you're talking about market instability, GDP going down, but what does that mean for everyday Canadians? Well, it means a really rough road ahead.

And, you know, everybody knows somebody who lost a job during COVID. But think back to the 2008 financial crisis when everything was just kind of lousy and there was no growth anywhere. Everybody was scared. And when you're scared, imagine if your company doesn't have anything to do with international trade. You make a product in Canada, you're not dependent on American inputs, you sell it to Canadian customers and everything's been going great. So great in fact, that you think, Hey, you know

what, I'm going to buy an extra couple of trucks for the drivers because man, we're really delivering a lot of stuff or we need a new warehouse in the back because we've got so much stuff coming in and we're just doing so much more business. That's usually a sign of fantastic optimism in the economy.

Even if you're that person, even if you're in that position right now, you'd look at this landscape and say, I'm not spending the money on a new truck or a new warehouse or a new anything. I'm hoarding my money and hoping this, this storm passes over without clobbering us. And when that happens, that can grow and snowball that when businesses aren't investing and they're

not hiring and you're not sort of adding to growth and you're not, you know, it's harder to find a job. It's harder to, it's more likely you're gonna lose a job. And it just gets bad and lousy and it can build and snowball off itself when it gets that bad. The irony here is that Trump's tariffs will actually hurt Americans too. Can you explain that for us, Peter? This is going to clobber Americans.

It is as sweeping and as broad a tax increase as that country has seen maybe ever. The trade partnership worldwide did this amazing study that looked at the impact this is going to have. And it says that based on 2024 trade levels, the new rates are going to impose $233 billion in extra tariffs and extra taxes. And this is the part that's crazy. Going forward, they could lead to $700 million US in extra taxes on US companies per day, starting on Tuesday. Companies in 18 different states could be on the hook for $10 million in daily new taxes. There's companies in Montana that these new tariffs are going to represent a 2,625% increase

over what they've been paying. It is a shocking increase in how much these companies are going to have to pay by the week, by the day, by the month, by the year. This will be a very serious hit to Canada's retaliatory measures. Trudeau announced 25% tariffs on $30 billion worth of American goods coming into Canada. Then in three weeks' time, the 25% tariff will be applied to another $125 billion worth of American imports. Premiers across Canada have announced countermeasures too. Doug Ford is making good on his promise he made a couple weeks ago,

saying he's going to remove all American products from LCBO shelves starting on Tuesday. I have directed BC Liquor sales to immediately stop buying American liquor from red states. Today I'm telling the people of Manitoba that beginning on Tuesday, February 4th, the day that tariffs take effect, red states. What are the products that are going to be affected first? vegetable clothing. Our response will also be far-reaching and include everyday items such as American beer, wine and bourbon, fruits and fruit juices, including orange juice, along with vegetables, perfume, clothing and shoes. It'll include major consumer products like household appliances, furniture and sports equipment and materials equipment, and materials

like lumber and plastics. But then they put out the full list over the weekend. And it's what we sort of expected. Orange juice from Florida, yogurt from Wisconsin, Harley Davidson motorcycles from Wisconsin, bourbon from Kentucky, and household appliances from a bunch of different states. So it's not just that they're going to try to hit a broad swath of imports into Canada, but they're trying to specifically target them to politically important regions where they hope the impact of these tariffs will drop demand in America for those products. Those producers will go to their elected representatives to try to squeeze them and say, Hey, get these tariffs off of us.

Cause they're, they're, they're eroding our demand. So, so with the tariffs that, that Trudeau announced over the weekend, am I going to see different prices when I go into the grocery store on Tuesday? Yeah, yeah, you are. You're, you're going to see different prices on vegetables and fruits and juices from the United States.

If you can still find American booze on store shelves, cause a lot of the liquor companies in, in, uh, in the provinces have been removing them over the weekend, uh, they'll be more expensive. So like, it may sound weird to people given the difference in size between the Canadian and American economies, but Canada does have a significant degree of leverage here, like even

before the nuclear option of cutting off energy exports, spell out for us, if you can, Peter, like the degree of leverage that we have here. Like we still have room to scale up tariffs if we need to. We do have room to scale up tariffs if we need to. We do have room to scale up. But again, the tariffs we're going to add will only hit Canadian consumers. They will eat into American demand. They'll produce less stuff, but it's a bigger economy and they're not as dependent on us as we are on them. So we do have leverage and I don't want to understate that, but you do need to be careful. You do need to make sure that you're not punishing

Canadians and driving up our costs here. Like at what point does the cost benefit of that sort of, what's the ratio where that starts to work itself into something that starts to be more problematic than beneficial? Now, we know that the amount of fentanyl where that starts to work itself into something that starts to be more problematic than beneficial. Now, we know that the amount of fentanyl moving north to south is less than 1% of what

enters the US and less than 1% of illegal crossings happen from Canada. Trump has said that he's not looking for a concession speeder. He posted again, that one outcome could be annexing Canada. So like, what's the off ramp here? Is there an off ramp?

I mean, off ramps are tricky things and they're tricky things, whether you're, you know, in a fight with your coworker at work or you're in a shooting war in the international theater, or you're in a trade war with your longest standing trade partner, the, the hard part about any conflict is trying to figure out a way to step back.

It, it, you can throw a punch out of anger and set off a long series of things that, that can get out of control pretty fast. Um, and figuring out how to step away from that is, has always been the hardest part. Uh, I, I happen to have been reading the, the old And figuring out how to step away from that has always been the hardest part. I happened to have been reading the old Pierre Burton book on the war of 1812.

And there's a quote that I wrote down when I was reading that, that said, he was talking about how kind of that war ended up in a large way, making the Canada that we know today. And he said, we're Canadians and not Americans because of a foolish war that scarcely anyone wanted or needed, but which once launched, no one knew how to stop.

And I think that there are a lot of echoes to that here. There's a lot of echoes to something that nobody wanted, that certainly nobody felt, nobody other than the president and a small group of people around him feel is needed. And yet, if this does kick off on Tuesday, I worry about how we find the exit ramps and how we find a way of deescalating and stepping back and trying to go back to the way things were. Peter Armstrong, thanks so much for joining us.

Oh, you bet. That's all for today. I'm John Mulpitsie. Thanks for listening. We'll talk to you tomorrow. For more CBC podcasts, go to cbc.ca slash podcasts.