The ripple effects of Trump’s tariffs compound Canada’s continuing economic headwinds
Canada breathed a sigh of relief last week when United States President Donald Trump refrained from imposing further tariffs on our country, but this respite is overshadowed by the broader, more insidious impacts of his trade policies .
The heavy tariffs imposed on the European Union, China and other countries are set to reverberate through the global economy. Canada is far from immune to these ripple effects.
Trump’s tariffs are not just a bilateral issue; they are a catalyst for a potential global economic slowdown . The retaliatory measures from China and other affected nations are likely to exacerbate this downturn, creating a vicious cycle of reduced trade and economic activity like people saw in the 1930s.
The expected economic slowdown is already manifesting itself in oil prices, which dropped well over 10 per cent last week. This decline is particularly detrimental to oil producers in Alberta, whose stock prices plummeted more than 15 per cent in response. Stock prices may well recover somewhat this week, but that doesn’t change the big picture.
One of the most troubling aspects of Trump’s tariffs is that they are arbitrary and lack a clear economic rationale. This ambiguity has sown seeds of uncertainty , as reflected in the largest spike in the VIX index, the fear gauge, since the COVID pandemic. Uncertainty is the enemy of investment. It breeds caution and delays in capital expenditure, stalling economic growth.
The erosion of consumer confidence is perhaps the most damning consequence of Trump’s tariffs. As uncertainty looms and economic indicators falter, consumers are tightening their belts, leading to further downward pressure on global economies.
Even if the tariffs on Canada were lifted tomorrow, the lingering effects of diminished consumer confidence and investment hesitancy would continue to pose significant challenges.
In light of these developments, Canada must brace itself for ongoing economic headwinds.
The indirect impacts of the tariffs underscore the interconnectedness of global trade. Canada as an open economy is not immune to a global economic slowdown. Trust in the international rules-based order has vanished for years to come. The sheer madness of the Trump turmoil will have lasting effects.
There is no easy fix for Canada. Our fundamental problems predate Trump and have been in the making for years. Decreasing reliance on the U.S. market is essential, but diversifying trade to new partners will not help in the short term if potential partners are experiencing recessions.
The best thing we can do is get rid of trade barriers within Canada . All major political parties agree on this.
The other fixes are much more difficult. We need to reverse the dismal trend in our productivity, but that will take time. We will need to scale up our promising technology startups, but that is easier said than done. Whichever party wins on April 28 will have to be honest with Canadians. Tough times will continue.
Yrjo Koskinen is the BMO Professor of Sustainable and Transition Finance at the Haskayne School of Business, University of Calgary, and specializes in sustainable and climate finance and corporate governance issues.
Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.