While the president of the United States, Donald Trump, threatens tariffs on tariffs, companies, consumers and political leaders are struggling to discover how to respond. But the mere threat of tariffs is already having an impact.
“Whether they sit in their place or not, the damage is done,” said Greig Bical, former executive of the automotive industry and associated professor at the W. Booth School of Engineering Practice and Technology at McMaster University.
He says that Trump’s threats have already changed the landscape. Whether you continue with tariffs or not, or if you drain specific exemptions, the threat will only expel the investment from Canada and the United States.
“For at least the next four years, there will not be a serious investment in the Canadian automotive industry,” Bicue said.
Experts have been warning that this would happen since Trump was chosen.
When the Canada Bank reduced interest rates last month, one of the key reasons was the concern for business investment in Canada.
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“Even if no rates were imposed, a long period of uncertainty under the cloud of tariff threats would almost surely damage business investment in Canada,” the Central Bank wrote in its summary of deliberations, developing its reasoning for the trimming of the interest rate .
The KPMG consulting firm asked 250 companies in Canada what actions they were taking in front of the tariffs and what they planned to do in the future. KPMG did not precisely released who was included in the survey, so we cannot be sure that he represents the opinions of business leaders in all industries and regions.
But the findings provide a crucial vision.
He found that almost half of the companies were contacted “plan to change investments or production to the US. UU. To serve the US market and reduce costs.”
Most also said they had diverted or are considering diverting assets to countries that do not face rates.
Business investment is key to growth in any economy.
When companies invest, they generally need workers to build factories, assemble machinery or develop software. So, when business investment is exhausted, that generally means less demand for workers and less options for employment applicants.
Economists say that high business investment can have a series of positive impacts on the economy.
“The new capital tends to make workers more productive, offering more scope for salary increases that are not directly inflation,” said Royce Mendes, managing director and chief of macro strategy at Desjardins Capital Markets.
But he says that business investment decreased in 2015 when oil prices sank and have remained stubbornly low since then.
Economists warn that the Canadian economy has weakened and gives Canada less mattress to resist a commercial war.
“The GDP per capita has decreased for eight of the last nine quarters, and business investment has been stagnant. Both cyclically and structurally, Canada’s economy is not well positioned to absorb a shock of this scale,” wrote the chief economist of Royal Bank, Frances Donald, and the deputy the chief economist Nathan Janzen.
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That weakness was already a problem before the threat of tariffs arose. Now, all, from economists and consulting groups to the Bank of Canada, warn that it can get worse.
“Companies were already reassessing their investment plans against the uncertainty of commercial policy. With significant rates, the risk of capital flight would increase, exacerbating the competitiveness challenges of Canada and the low growth of productivity,” the bank wrote of Canada in its summary of deliberations.
There is a lot of uncertainty and a lot of pessimism, but the threats to Canada’s economy have also sharpened the resolution and have led to different levels of government to take measures.
The provinces and territories are seriously talking about the elimination of long -standing commercial barriers. The federal government and opposition parties have indicated a new opening to develop important infrastructure projects.
“The world has changed much after what we have seen of what our friend, United States,” said Federal Energy Minister Jonathan Wilkinson. “I think he asks us to reflect on whether there are some conversations that we need to have in this country.”
At least, the threats of a commercial war have shown that the status quo can change rapidly. The question for Canadian companies and those in charge of formulating policies is whether they can change quickly enough to compensate for the potential damage that is coming on the horizon as Trump’s tariff deadlines approach.
