How much pain will Canada endure as a result of Ottawa’s proposed tariffs on food imports from the United States?
Depends who you ask. Food industry and trade analysts are divided on the issue, with some dismissing the levies as pure economic folly and others arguing that they will open up rare opportunities for growth in certain sectors of Canada’s food industry.
“Would we all be better off if we didn’t get into a trade war? Yes,” said Mike von Massow, a food economist at the University of Guelph. “Will there be adjustments in terms of winners and losers in the market depending how long these tariffs are in place? Yes.”
Prime Minister Justin Trudeau hit back against U.S. steel and aluminum tariffs last week, announcing $16.6 billion worth of countermeasures against a range of U.S. imports — including food items such as gherkins, pizza, quiche, mustard and whiskey.
The items were selected strategically to inflict the least amount of pain on Canadian consumers while simultaneously exerting maximum political pressure on the U.S. For instance, the tariffs will target maple syrup imports, a product easily substituted with a Canadian equivalent while hitting Democratic Senator Bernie Sanders’ home state of Vermont.
Though the food items on the tariff list tend to draw the most attention, their volumes aren’t large and most are easily replaced with Canadian fare – suggesting the impact on consumers won’t be dramatic, von Massow said. Take yogurt, a dig at House Speaker Paul Ryan’s state of Wisconsin. It accounts for just $3 million of Canadian imports each year.
“People will have to switch to other options, that’s all,” von Massow said. “If you are a particular fan of Jack Daniels, you will have to pay more for it, but you could also switch to Canadian rye whiskey or Johnnie Walker. The degree to which consumers are hurt depends on their flexibility.”
At the industry level, the “substitution effect” could benefit those Canadian firms that happen to produce the alternative to American brands and possibly encourage expansion in others, said Sylvain Charlebois, a professor in food distribution and policy at Dalhousie University.
“There have been many cases where governments want to send a signal to trading partners through tariffs but they end up hurting their own people, but in this case I don’t see these tariffs creating a food security issue, at least for now,” he said. “Depending how long this lasts it could incite some sectors to rethink how they do business overall and how they can grow.”
For instance, though Canada is the largest exporter of mustard seed in the world, with most of the grain going to the United States, it processes very little into actual mustard. Instead, Canada buys packaged mustard back from U.S. suppliers “at twenty times the price,” Charlebois says.
“We don’t think about food processing all that much in Canada,” he said. “This could change that.”
Of course, the extent to which new investment occurs will depend on how long the tariffs stick around – an unknown in the current volatile political climate.
And not everyone agrees that the countermeasures, however carefully devised, are in Canada’s best interests. The sheer size of the U.S. economy combined with Canada’s outsized dependence on trade suggests there is little point going head to head with U.S. President Donald Trump in a tariff war, said Ian Lee, a professor at Carleton University’s Sprott School of Business.
A better strategy for Prime Minister Justin Trudeau would be to form a united front with other G7 and G20 countries to jointly pursue complaints against the United States before the World Trade Organization and the North American Free Trade Agreement, he said.
“I think the road we are going down is too clever by half,” said Lee. “We’re going to encourage industry through import substitution? We’re going to start building mustard plants in Canada? No, there’s a reason products are made where they are made.
“Tariff barriers are always a bad thing, no matter how you spin it. This has been studied literally since the Great Depression when we had these huge tariff wars back in the 1930. The consensus of economic scholars is that they did not cause the Depression but they exacerbated significantly the depth and duration of the recession.”
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