It sounded almost like a wartime speech. Preparing the nation for an austere Nov. 4 budget, Prime Minister Mark Carney told Canadians that the four-decade era of ever-closer integration with the United States was over, and he called for patience and sacrifice as the nation moves to find other trading partners.
It’s a message Americans will need to heed as well.
Just as slower growth and job losses have hit the smaller Canadian economy, so they will hit the massive U.S. one. The difference: While the impact is evident in Canada, which is already seeing job losses and flirting with recession, in the U.S., the trade-war hit is still largely hidden.
Why We Wrote This
A trade war with Canada might be less visible to Americans than one with China. But it has big impacts on both sides of the border, felt by U.S. households as prices for materials from metals to lumber jump.
And the conflict might drag on for some time.
Even as China and the U.S. have signaled a potential new framework for a trade deal, to be determined after a direct meeting Thursday between President Donald Trump and Chinese leader Xi Jinping, Mr. Trump threatened additional tariffs in response to a Canadian TV spot honoring President Ronald Reagan’s trade policies.
America’s No. 2 and No. 3 trading partners, respectively, Canada and China, have the most to lose from a trade war. Both have retaliated when the U.S. has imposed new tariffs.
But the differences are telling.
Beijing has gone much more on the offensive, threatening curbs of its own – especially on rare earth metals – than Ottawa.
China is a big geopolitical rival to the U.S., while Canada has been a staunch ally with a much smaller economic footprint. China also exports many finished goods – from TVs to smartphones – that compete directly with Western brands, while Canada’s exports are overwhelmingly goods such as steel parts and even energy that go into making those finished goods.
That is why the costs of a trade war with Canada are far less visible to Americans than one with China, though equally compelling. Tariffs work like a hidden tax, which will cost American households an average of $1,300 this year and $2,000 next year, according to a Tax Foundation report issued on Monday. That’s the equivalent of the largest U.S. tax increase as a share of the economy since 1993, “surpassing the tax increases enacted under President Barack Obama and President George H.W. Bush,” the report found.