BUSINESS
06/17/2018 14:34 EDT | Updated 06/18/2018 13:13 EDT

A Trade War With U.S. Would Knock Canada's Economy Into Recession: Scotiabank

It isn't looking great.

U.S. President Donald Trump and Canadian Prime Minister Justin Trudeau hold a meeting on the sidelines of the G7 Summit on June 8, 2018.
SAUL LOEB via Getty Images
U.S. President Donald Trump and Canadian Prime Minister Justin Trudeau hold a meeting on the sidelines of the G7 Summit on June 8, 2018.

OTTAWA — A new analysis of escalating trade disputes involving the United States warns that a deterioration into an all-out, global trade war would knock North America's economies into recession.

The report by Scotiabank said if the U.S. breaks all trade ties with its partners — and imposes across-the-board tariffs that average 20 per cent — then Canada and Mexico would see their economies contract in 2020.

For Canada, it predicts the economy would shrink 1.8 per cent.

"A ramp-up in protectionism in the U.S. results in a negative impact on growth in each of the NAFTA partners' economies," said the report, co-authored by Scotiabank's Brett House, Juan Manuel Herrera, Rene Lalonde and Nikita Perevalov.

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Experts have been trying to gauge the economic consequences of the intensifying trade fight between the Trump administration and traditional American allies like Canada.

Earlier this month, the U.S. imposed significant tariffs on steel and aluminum imports from other countries, including Canada, Mexico and the European Union. Washington is now threatening to introduce more duties — this time on automobiles.

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The move has infuriated allies and has prompted them to retaliate with tariffs of their own on U.S. imports.

On Friday, U.S. President Donald Trump went further by slapping a 25 per cent tariff on up to US$50-billion worth of goods from China. The tariffs are set to take effect July 6 and would push the world's two largest economies closer to a trade war.

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Donald Trump leaves after holding a press conference ahead of his early departure from the G7 Summit on June 9, 2018.

Throughout this turbulence, a separate economic sting related to uncertainty has persisted as Canada, Mexico and the U.S. have largely stalled in their efforts to renegotiate the North American Free Trade Agreement.

By the numbers

As experts try to get a handle on the economic impacts, here are some telling numbers about the deepening trade battle:

0.2 percentage points — the reduction to Canada's growth in gross domestic product in 2019, if NAFTA falls apart and 3.8 per cent tariffs are imposed across the board, according to Scotiabank's recent report.

0.4 percentage points — the reduction to Canada's GDP growth in 2020, if NAFTA falls apart and 3.8 per cent tariffs are imposed across the board.

0.2 percentage points — the reduction to Canada's GDP growth next year, if NAFTA talks extend past the second quarter of 2019 and tariffs on steel, aluminum and autos are in place, Scotiabank estimates.

1.8 per cent — the size of the contraction for the Canadian economy in 2020 if the U.S. launches an "all out" global trade war with an average of 20 per cent tariffs across the board with all partners, according to Scotiabank.

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Justin Trudeau addresses a press conference at the conclusion of the G7 summit on June 9, 2018.

3.1 per cent — the share of Canada's total merchandise exports affected by U.S. steel and aluminum tariffs, according to data provided by Export Development Canada's deputy chief economist Stephen Tapp.

0.7 per cent — the share of Mexico's total merchandise exports affected by U.S. steel and aluminum tariffs.

0.4 per cent — the share of the E.U.'s total merchandise exports affected by U.S. steel and aluminum tariffs.

0.1 per cent — the share of China's total merchandise exports affected by U.S. steel and aluminum tariffs.

US$12.4 billion — the value of Canada's steel and aluminum exports to the U.S. in 2017, Tapp says.

US$2.9 billion — the value of Mexico's steel and aluminum exports to the U.S. in 2017.

US$7.7 billion — the value of the E.U.'s steel and aluminum exports to the U.S. in 2017.

US$2.8 billion — the value of China's steel and aluminum exports to the U.S. in 2017.

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