Sylvain Charlebois is professor in food distribution and policy, faculty of management, Dalhousie University.
We are now officially at war with the United States – trade war, that is. In response to U.S.-imposed tariffs on steel and aluminum, Canada intends to introduce levies on some U.S. goods. Like any trade war, it could escalate. Canada will unlawfully (under WTO rules) implement countermeasures that will take effect on July 1 if the United States does not rescind its duties on steel and aluminum: It’s like Wal-Mart going up against that cute little gift store we visit every so often. And just to be clear, Canada is not Wal-Mart in this scenario.
This trade war appears to be moving into agrifood, one of the most sensitive economic sectors when it comes to trade. Of the 84 items mentioned on Canada’s “Table 2” list of products that would be subject to tariffs, 23 are food products. History has shown us that trade wars are not kind to consumers when agriculture and food products are targeted. Food inflation tends to skyrocket when barriers are erected and, as Canada imports more than $25-billion worth of agrifood products from the United States, consumers will feel the pain. Fruits, nuts, vegetables, beverages and baked goods represent a big portion of those imports, but, interestingly, none of those items are mentioned in Ottawa’s recently issued notice of intent. In other words, it is highly unlikely these countermeasures will become a threat to Canada’s food security.
In fact, it is categories with lower sales volumes that are being targeted, and most of the food products on the list have Canadian-based alternatives in the marketplace. Yogurt, ketchup, pizza, maple syrup, chocolate, jam and whiskey are made in Canada, but other categories, such as prepared foods, mustard, soy sauce or mayonnaise may be more problematic: Canadians will likely see some U.S. goods becoming more expensive; perhaps some as expensive as many Canadian-produced products. This could be welcome news for some of domestic businesses – the “Buy Canadian” movement will certainly see it as a needed boost. The challenge, of course, is that many of the U.S. products are cheaper – much cheaper – even when the dollar was worth less than 75 US cents. Price points will likely go up and cheaper options could be limited.
But food retail prices have barely moved since January. Annualized food inflation is at 0.1 per cent. Prices have room to increase, and if tariffs are implemented, grocers could see it as an opportunity to raise prices. If they opt to do this, the move will likely be subtle and consumers may not even notice a 3-per-cent to 4-per-cent hike on prices of U.S.-based food products.
Back in early 2017, Ottawa eliminated many tariffs on a long list of ingredients, including cereals and grains, fats and oils, fruits and vegetables, and other food preparations. These measures allowed Canadian processors to save more than $200-million a year and strengthen their competitiveness both at home and abroad. The list of possible countermeasures does not suggest that Ottawa intends to reinstate these tariffs, and so sparing the processing industry. The notice of intent appears to be quite populist, targeting consumable food products many Canadians buy regularly, but not frequently.
In fact, the list seems to include either products we manufacture, or products we actually should be manufacturing more of, such as soy sauce and mustard. Canada is the largest exporter of mustard seed in the world, with most of it being sold to the United States and bought back in bottles at 20 times the price. This could perhaps be the financial incentive needed to change this practice.
Throughout history, countries attempting to protect their market by issuing duties on food imports have seen how such measures can often backfire, usually hurting those who are supposedly being protected. But Ottawa seems to be using a different playbook with Washington. It seems to want to send a clear message that the new tariffs are unacceptable, while at the same time offering the food industry an opportunity to grow. Its notice of intent delicately strikes a balance between diplomatic resilience and economic inducement for our agrifood economy. Consequently, it may not be such a bad thing if mustard and mayonnaise get more expensive.
But based on pure economics, Canada cannot win against the United States. That fight won’t even be even close. Some argue that the Trudeau government is playing a game of chess with Washington – but the game looks more like Russian roulette than anything else. The tiff could play out in many ways before July 1. We should all hope Canada has a long-term plan if this trade war lasts a while, as it likely will.