The novelty phase of our trade dispute with the United States is coming to an end.
That’s where we boo the U.S. anthem at hockey games, fly Canadian flags, stop buying U.S. products in stores and vacation anywhere but the U.S.
Regardless of how or whether these responses are seen in Washington, they serve a purpose. Fighting the U.S. on trade would be punishing for the personal finances of this country and we need all the solidarity and resolve we can find. Exactly what we’re up against started to emerge in housing and inflation data this week.
The cost of living was 1.9 per cent higher in January than the same month a year earlier, which sounds tame. But there are underlying inflation pressures that suggest the economy, tariffs aside, has been gaining strength.
Normally, this would be welcome news. But if a trade war erupts, we can expect a noxious combination of a worse economy and higher inflation. U.S. tariffs would likely push our dollar lower, which makes imports from the U.S. more expensive. And if we slap tariffs on those imports, they become even pricier for consumers.
You could be paying more for groceries at a time when your leverage in the workplace is weakening. Raises and bonuses would be jeopardized, and jobs lost to layoffs or companies relocating.
One of the multiple rationales U.S. President Donald Trump has used for his tariff threats against Canada and other countries is coercing companies to move operations to the U.S. Recent comments from the chief executive officer of auto parts maker Magna International Inc. suggest some companies in the automotive sector are discussing moving production to avoid tariffs. A KPMG survey has found that almost half of Canadian businesses plan to shift more investment and operations to the U.S.
A trade war would make life more expensive and financially unpredictable for Americans as well, but we’ll feel it more in Canada. Home sales data for January provide a clear example. Sales of resale homes nationally were up 2.9 per cent on a year-over-year basis, but slowed at the end of the month as the tariff threat emerged. Prices increased 1.1 per cent, which is to say they lost 0.8 per cent on an after-inflation basis.
The most interesting aspect of the January numbers was an 11-per-cent jump compared with December in the number of newly listed homes. More people were trying to unload their homes at a time when fewer people were interested in buying.
I’ll explore the upside of this outlook for young buyers in an upcoming column. Boomers hoping to downsize and cash out, can you hold on for a while? Selling in a trade war, or under the threat of one, is not how you want to close the book on your family home.
Canadians have so far been united in their stance against U.S. trade threats, but we haven’t sacrificed much of anything yet beyond trips to Florida and select U.S. goods that can easily be replaced. For a sense of how we might be tested, check out the comments made by former prime minister Stephen Harper at the recent launch of his new book, Flags of Canada.
As reported by the Toronto Star, Mr. Harper said Canada “should accept any level of damage” to preserve its independence. He added, “If I was still prime minister, I would be prepared to impoverish the country and not be annexed, if that was the option we’re facing.”
The financial steps to take in preparation for a trade war were covered earlier in this space – build cash savings where possible, be cautious about new debt obligations and prepare for your investments to bounce around in the near term. An additional step is to use the coming federal election as an opportunity to have a say in how a trade war would be fought.
One of the most important Canadian election campaigns since the Second World War could start shortly after a new leader for the Liberal Party is chosen on March 9. Two essential points in assessing the federal parties and candidates are their plans for defending Canada’s economy and sovereignty, and their honesty about the costs for everyday people.
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