The threat of tariffs on Canadian goods being shipped to the United States began almost immediately after Donald Trump was re-elected president in November.
"Tariffs is the most beautiful word to me in the dictionary," he said at his Jan. 20 inauguration ceremony.
The president has slowly ratcheted rates up since, and on Thursday, July 31, he upped the rate on Canadian imports from 25 to 35 per cent. Canadian steel and aluminum continue to be subject to tariffs of 50 per cent.
Because of modern free trade agreements 鈥� and a lack of consistency and detail from the president 鈥� the impact remains uncertain and unpredictable for many people in B.C.
Evolving deadlines and meandering social media posts from Trump only make it more confusing.
To help break this down and try to figure out what the potential endgame is, Black Press spoke to a business professor, a political science professor, a representative for manufacturers and exporters and the owner of an impacted business.
These experts say Canadian businesses are at least somewhat protected from tariffs by previous trade agreements, which Trump has said he will honour. They also say Canada is in a position of strength, and there is no reason to rush negotiations.
But in the end, Canada will most likely be forced to offer some sort of concession that the president can use to claim victory.
And one thing is now clear to Canadians and the rest of the world: the era of global trade liberalization is over.
"It's never going to be the same again," said Andrew Wynn-Williams, B.C. divisional vice-president of Canadian Manufacturers and Exporters, an industry association representing small and mid-size businesses.
Nevertheless, Canada is in a better situation than many other countries. Although it is one of the most dependent countries in the world on the U.S. for trade, many Canadian products will be exempt from the new tariffs if they comply with the requirements of Canada's 20018 trade deal with the U.S.
That is, so long as proper paperwork is filed with customs agents at the border. And issues still arise for companies that source components outside Canada, and assemble or repackage them for sale in the U.S.
Coquitlam's Ampco manufacturing is one of these companies. Owner Dann Konkin said switching to local sources increases costs, taking a chunk out of profit margins.
"We're being ground down," he said.
The impact of tariffs
At the most basic level, a tariff is a tax paid on imports. The general goal is to raise revenue and make things from other countries more expensive, therefore boosting business at home.
These sorts of schemes had gone out of vogue in previous decades, as economists realized that making stuff more expensive is not a great way to boost the economy, especially in a globally connected world. Generally, it is agreed that this extra cost gets passed on to the consumer in the country that enacts the tariff, in this case, America.
Werner Antweiler, an international trade expert at the University of British Columbia's Sauder School of Business, gave the example of steel. If imported steel becomes more expensive, then U.S. steelmakers will raise prices to match, simply because they can.
"That's the nature of protectionism," he said.
The U.S. steel industry can't simply start making the same types of steel that are imported, either. This would require difficult and time-consuming changes to American steel manufacturing processes.
The result is that prices go up across the board, impacting downstream industries in the U.S. that rely on steel. As a result, the price for finished goods goes up, and sales go down.
"This makes no sense economically," he said. "This is not a program that will create jobs."
The inter-connectedness of the American and Canadian economies adds another wrinkle. Wynn-Williams described a situation with car parts that is so complex, it is difficult to understand where the part is actually from.
He gave the example of a piston. It could be made from Canadian aluminum, that is then cast in Michigan, sent to Ontario to be shaped into a piston, shipped to Mexico for finishing, back to Michigan to be put into a powertrain, off to Ontario again for the engine to be put into a vehicle, then shipped back to the U.S. for sale to a consumer.
"A lot of people don't realize, they think it's just, 'Oh, we're selling one product to them and they're selling another product to us,'" Wynn-Williams said. "It's much more complicated."
Products like this piston could end up with tariffs levied several times before being shipped off for sale to the public.
CUSMA can only protect some Canadian businesses
The Canada, U.S. and Mexico Agreement (CUSMA) was signed in 2018 to replace the North American Free Trade Agreement (NAFTA) and maintain a free trade zone between the three countries.
There are rules companies must follow to ensure their goods comply with this agreement. Depending on the type of product, a certain percentage of its parts must be locally sourced from within North America. Paperwork must be presented at the border to prove where the product is from.
Many large companies with in-house lawyers are easily able to comply with this, and their goods are CUSMA-compliant. But this doesn't always work for smaller companies.
"Canada's economy is made up of small and medium-sized enterprises, and so a lot of them don't do it because it's expensive," said Greg Anderson, a political science professor at the University of Alberta and an expert in Canada-U.S. relations. "They don't have a big general counsel's office to do all this stuff for them."
Until Trump enacted the first round of tariffs in the spring, if companies weren't compliant, the wasn't too bad 鈥� about 2.5 per cent. This meant many companies would just skip the paperwork and pay the difference.
In April, RBC this situation, finding that roughly 86 per cent of Canadian exports to the U.S. could be CUSMA-compliant, but only 38 per cent had the proper paperwork filled out to be traded under CUSMA rules.
Antweiler said the share of goods that are CUSMA-compliant is increasing rapidly since Trump announced the first round of tariffs. Wynn-Williams said the Canadian Manufacturers and Exporters organization is working to get businesses help with the paperwork to get into compliance.
But problems still arise for companies like Ampco, which import components and materials from outside North America. Konkin reckons only about half of his exports could be considered CUSMA-compliant, and because each product is different, the paperwork is a huge burden.
Due to the complexity of this process, mistakes happen, costing him money. Sometimes, these are errors made by customs agents at the border. Other times, problems crop up because with large volumes of product, it is difficult just trying to figure out how much is being charged, and for what.
It is all adding up.
Ampco produces rubber mouldings and sensors, some of which are put into American trucks. Sales of those trucks are down, Konkin said, along with his orders.
"They're paying the tariff for the product to come into their plant, and now they're trying to sell a truck that has that added to the price," he said.
Trying to figure out what Trump is after
Carney stopped by Ampco's Coquitlam warehouse a few days before the April election, and Konkin said he had about five minutes with the future prime minister to press his case on tariffs. Carney told him he was going to try to get the "best deal done for everyone in Canada."
Konkin said that he "absolutely agreed" with this position.
"I think Carney's gotta play a little hardball here," he said. Konkin said that he would like to see rates kept to 10 per cent.
While Canada allowed the Aug. 1 deadline to pass without a deal, several other countries, including Japan, South Korea, the U.K. and the European Union, came to terms with Trump.
Each deal is unique, but the common thread is that tariffs were set to about 10 to 15 per cent, and countries had to sweeten the pot by committing to invest in American goods in some other way, such as promising to buy U.S. energy products.
Anderson said this shows just how far Trump is willing to go to get concessions for lower tariffs. In Canada, Trump has justified the tariffs as a response to fentanyl crossing the border into the U.S. He has also pressed Canada to contribute more to defence spending.
"This is a completely different ball of wax, the way Trump thinks about economic arrangements," Anderson said.
UBC's Antweiler argues that Carney should play for time and set clear boundaries. Trump probably wants to implement at least some level of tariffs to gain revenue to pay for tax cuts, so zero tariffs is unlikely. At the same time, Canada can also put tariffs on American goods or take other retaliatory measures to get a better deal.
"We have significant strength in these negotiations, and I'm pretty sure Carney's team will have made it clear that we're not going to be a complete pushover," he said.
He also cautions that giving Trump too much might be counterproductive.
"We know Trump is a bully," Antweiler said. "Once he gets what he wants, he wants more."
