When US President Donald Trump threatens tariffs, businesses, consumers and policymakers are rushing to find a way to respond. But the mere threat of tariffs is already affecting it.
“The damage will occur whether they are introduced or not,” said Graig Moldoet, a former automotive industry executive and associate professor at W. Booth Engineering Technology at McMaster University.
He says Trump’s threat is already changing the landscape. Whether he advances tariffs or whether he carves out certain exemptions, only the threat will drive investment from Canada into the US.
“There will be no serious investments in the Canadian automotive industry for at least the next four years,” Mordue said.
Experts have warned that this will happen since Trump was elected.
When the Bank of Canada cut interest rates last month, one important reason was concerns about business investment in Canada.
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“Even without tariffs, the long period of uncertainty under the tariff threat cloud will almost certainly undermine business investments in Canada,” wrote the central bank in a deliberation summary. , has embodied the inference for interest rate reductions.
Consultant company KPMG asked 250 Canadian companies what they were doing prior to tariffs and what they were doing. KPMG did not release exactly who was included in the survey, so it is not clear to represent the views of business leaders in any industry or region.
However, the findings provide some important insights.
It turns out that almost half of the companies have contacted “plans to move investment or production to the US, serve the US market and reduce costs.”
Most people said they have diverted or considered decoupling goods to countries that are not facing tariffs.
Business investment is key to growth in any economy.
When companies invest, workers are usually required to build factories, assemble machines, and develop software. So when business investments dry out, it usually means there is less demand for workers and fewer job seekers’ options.
Economists say high business investments can have a series of positive impacts on the economy.
“New capital tends to make workers more productive and offers a range of non-direct wage increases,” says Royce, managing director and head of macro strategy for Macro Strategy at Desjardins Capital Markets. Mendes said.
However, he says that oil prices plummeted in 2015 and remained stubbornly low ever since, causing business investments to fall.
Economists have warned Canada will weaken its economy and will have fewer cushions to survive the trade war.
“Eight of the last nine quarters per capita GDP has declined, and business investments have stagnated. Periodically and structurally, Canada’s economy is not in a position to absorb shocks of this magnitude. Royal Bank Chief Economist Donald and Deputy Chief Economist Nathan Janzen said.
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That weakness was already a problem before the tariff threat appeared. Now everyone from economists and consultants groups to the Bank of Canada is warning that it may get worse.
“Companies were already reassessing their investment plans in the face of trade policy uncertainty. Significant tariffs have increased the risk of capital flight, and lowered Canada’s competitive challenges and productivity growth. “We will,” the Bank of Canada wrote in a summary of the deliberations. .
There is a lot of uncertainty and a lot of pessimism, but the threat to Canada’s economy has also sharpened its resolution, urging governments at different levels to take action.
The states and territories are seriously discussing removing long-standing trade barriers. The federal government and opposition parties have shown new openness to the development of major infrastructure projects.
“The world has changed quite a bit in the aftermath of what we see from our friend, the United States,” said Federal Energy Minister Jonathan Wilkinson. “I think it’s what we want to look back on whether there’s any conversation we need in this country.”
Without anything else, the threat of a trade war indicates that the status quo could change rapidly. The question for Canadian businesses and policymakers is whether they can change quickly enough to offset the potential damage looming on the horizon as Trump’s tariff deadline approaches.
