Trade Wars and Your Wallet
Tensions between U.S. President Donald Trump and Canadian Prime Minister Justin Trudeau are on the rise, and it could impact your wallet. On May 31, Trump announced that he was invoking a 25% tariff on Canadian steel imports and a 10% tariff on Canadian aluminum imports, effective June 1. The reasons for the tariffs, Trump said, are issues of “national security” and Canada’s “unfair” treatment of our neighbours south of the border. (And when Trudeau prodded him about what those concerns were exactly, Trump reportedly replied; “Didn’t you guys burn down the White House?”)
Trudeau was uncharacteristically blunt in his response, calling Trump’s comments insulting and foolish. “We have to believe that at some point common sense will prevail, but we see no sign of that with this action today by the U.S. administration.” Shortly after, Canada’s Foreign Minister Chrystia Freeland announced the Canadian government’s plan to invoke a list of retaliatory tariffs on American goods equal to approximately $16.6 billion, which came into effect on July 1. In addition to steel and aluminum, the list includes common household goods such as mayonnaise, chocolate, yogurt, maple syrup and whisky.
Experts say that the total effect of these tariffs on the Canadian economy is “minimal” but that doesn’t mean it won’t hurt Canadians on an individual basis. So how much might we feel these changes. Cities that are heavily reliant on the steel and auto industries—such as Hamilton and Oshawa—could be hit with job cuts. The estimated Canadian job losses for these steel and aluminum tariffs are around 6,000, which is a lot but it’s actually quite a small number relative to the total Canadian economy. While it may not hurt the overall economy, this is bad news for those affected, obviously.
Pampering yourself may cost more.
As “manicure and pedicure preparations” are on the PM’s list of retaliatory tariffs, American-made nail polish, nail brushes and hand soap will rise in price which means your spa session just got more expensive. Your grocery bill may also increase.
Canadians could see the biggest price difference on their grocery bills. Certain affected food items could see a 4–5% increase in price. The grocery space is pretty competitive, so those companies are only making, approximately, five to seven percent actual profit, leaving the grocery chains very little financial wiggle room. Those relatively small margins mean that the increase in costs have to be passed on to the consumers. Food items such as toffee, chocolate, pizza and strawberry jam are all set to be affected.
So, is there anything the average consumer can do with a looming increase in household costs of 3-6%? Yes, though it may not seem like much. First, see what items you’ve been purchasing that perhaps are not necessities: There are probably some items that can be cut until the trade war ends, (and it will end. Most experts agree this is more about negotiations with China than they are about negotiations with Canada.)
Second, and more obvious, is to buy Canadian. Whenever possible, it is always a good idea to support our own economy. This will not necessarily make the difference you would expect on your bottom line. With the increased tariffs, US products that were cheaper than Canadian due to economies of scale will likely, in the short term, be more expensive but as more people switch to the Canadian products, it is possible those prices will be driven up. However, even if you were to pay the same price for an item made in Canada as you do for an item made in the USA, every item you do not purchase from an American producer puts additional pressure on the US economy, which helps force the United States government closer to a resolution.
In summary, for the short-term, politics is going to trump economics but the key is that it is the short term. Five to ten years from now this will likely not even appear on your financial radar. From an investment perspective, this is not something to be overly concerned with. These unexpected short-term influences on the investment markets are exactly the reason we build portfolios that are diversified, not just across asset classes, but globally as well. Langlois Financial Services is always available for a review of your portfolio to make sure your current allocation, (with us or elsewhere), is appropriate for the current and long-term market conditions. Do not hesitate to contact our office if you would like to schedule a review.