Canada's Retaliatory Tariffs May Backfire, Warns Economic Institute

Canada's latest move to impose retaliatory tariffs on US imports may end up hurting itself more than the intended target, according to the Montreal Economic Institute (MEI). The institute warns that by mirroring the US tariffs of nearly 100 years ago, Canada will only slow down its economic growth and increase costs for consumers. These measures are aimed at sectors such as steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics.

The MEI points out that retaliatory tariffs have a history of backfiring, citing the example of Smoot-Hawley tariffs in the 1930s. Canada initially imposed counter-tariffs but later repealed them after realizing they had no impact on US trade policy. The institute also notes that Canadian companies may redirect their imports to domestic suppliers, but this is unlikely to offset the increased costs.

Royal Bank of Canada agrees that retaliatory tariffs will raise prices for Canadians, but adds a nuance in its analysis. While Canadian companies may benefit from redirecting imports to domestic suppliers, the more likely outcome is increased costs due to highly integrated supply chains.