New U.S. tariffs and trade restrictions on Canadian goods are unlikely to significantly affect Canadian economic growth in the near term, economists said Wednesday. Yet the latest escalation raises the risk of a more prolonged trade conflict, adding uncertainty for Canadian businesses and increasing the odds that the economy could stall or shrink in the fourth quarter, they said. TD Economics said in a client note that the American response to Ottawa’s counter-tariffs was threefold: stop imports of some products, remove tariffs on a handful of products, and introduce new tariffs on others. “The U.S. shifted what is covered by the tariff umbrella but has landed on a similar dollar amount that will be tariffed,” Andrew Hencic, senior economist with TD Bank Group, said in the note. The shift in tariff focus should not materially impact domestic growth in the near term, but represents “another manifestation of policy uncertainty” reinforcing concerns about U.S. market access and weighing on Canadian firms, he said. Starting Sept. 15, the U.S. will impose 50 per cent tariffs on Canadian goods representing about 0.6 per cent of U.S. imports from Canada, while removing 50 per cent tariffs on other goods representing about 0.5 per cent of U.S. imports from Canada. New duties will be applied to goods including outboard motorboats and metal and paper products while tariffs were removed from goods including cement, sugars, toilet paper, and fishing rods. “It’s not really a net new escalation by the U.S.,” BMO chief economist Doug Porter said in an interview. “This is really more of a reshuffling of the chairs on the deck.” The United States has also barred imports of some Canadian goods, including whey, alcoholic beverages and motorcycles. BMO estimates those banned export products to be worth about US$1 billion, Porter said. While the affected sectors will be “hit quite hard,” he said other sectors have been “let off the hook.” “From a broad macroeconomic lens, we view this as a wash, not a net new impact on the economy,” Porter said. “We wouldn’t change our forecast based on this.” Still, the escalation in trade tensions could spell trouble ahead for the Canadian economy. “It’s the direction that we’re headed in, that’s maybe the bigger story here,” Porter said. “This might not go away quickly. It does raise the risk that there might be further growth cuts if this deteriorates.” Capital Economics said in a client note that the U.S. ban on some Canadian goods will have “little effect on either economy.” “Nonetheless, the escalation raises the risk that the 50 per cent tariffs will remain in place for longer than the month or so that we assumed for our forecasts, therefore dealing the Canadian economy a larger blow,” Stephen Brown, chief North America economist at the independent economic research firm, said in a note to clients. If the tariffs remain in place until the end of the year, Brown said Canada’s economy could stagnate or contract in the fourth quarter. The federal government’s roughly $7.5 billion in stimulus spending will offset some of that impact, he noted. The items removed from the U.S. tariff list late Tuesday are valued at roughly US$1.7 billion, and the new targets are worth about the same amount, Brown said. Cement and switchgear assemblies — electrical equipment systems that typically contain things like circuit breakers and fuses — were among the products removed from the original U.S. tariff list. Brown suggested that could be tied to the role these products play in building data centres. He estimated that Trump’s new import bans will apply to 0.25 per cent of Canada’s exports to the United States, or 0.03 per cent of total U.S. imports. Trump’s Section 338 tariffs, imposed on a range of Canadian goods starting Aug. 22, hit some five per cent of Canada’s exports to the United States with a dollar value of around $28 billion. -- With files from Craig Lord in Ottawa. Brett Bundale, The Canadian Press
