If tariffs do come for Canada, here’s what would get expensive first

The cost of lettuce and other perishable foods, and gasoline prices in some provinces, would be the first costs to spike for Canadian consumers if and when U.S. President Donald Trump slaps a 25-per-cent tariff on imports from Canada, and if Ottawa and the provinces retaliate.

On Monday, Prime Minister Justin Trudeau announced a 30-day pause on the implementation of new U.S. tariffs and Canadian countertariffs on American goods, which were scheduled to begin Tuesday. By some estimates, if tariffs proceed, the price of gasoline could increase by as much as 10 per cent in some provinces and Canadian auto buyers might pay in excess of $8,000 more for a new car within weeks.

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About $30-billion worth of American goods would see a price bump in the first round of Canada’s announced countertariffs, which could make items imported from the United States – from peanut butter to coffee – more expensive.

Gasoline prices in parts of Canada may rise as soon as a day after tariffs are imposed and imported perishable foods could get pricier quickly as well. Manufactured food products and appliances may take longer to reflect price changes as retailers sell existing inventory.

In provinces such as Ontario and Quebec, Canadians could see prices at the pump jump quickly because a large chunk of our refined oil, especially on the East Coast, is imported from the U.S. Oil prices are sensitive to changes in input costs said Joseph Steinberg, a University of Toronto professor who specializes in international economics and trade policy.

“The cost of refining Canadian crude oil is going up in the United States and those costs are going to get passed back on to Canadian consumers as we reimport that refined oil back from the United States,” he said.

As of now, however, it’s unclear whether there would be exceptions for Canadian oil passing through the U.S. or how this tariff would be applied.

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En-Pro International Inc. chief petroleum analyst Roger McKnight wrote in a post last week that if Mr. Trump applied a 25-per cent tariff on Canadian crude oil, pump prices would go up by at least 10 per cent. Prof. Steinberg said he’s seen estimates of increases ranging from 15 to 70 US cents per gallon in the U.S. Those prices could spill over to parts of Canada, with Quebec and Ontario likely seeing price increases similar to those in New York State, he said.

In provinces such as Alberta, where a significant amount of oil processing is done within the province, fuel prices might go down for consumers there if less is exported to the U.S.

At the grocery store, perishable food such as fruits and leafy greens could also see price spikes almost immediately owing to their short shelf life. James Vercammen a professor of food and resource economics at the University of British Columbia, said Canadian shoppers can expect prices for products such as lettuce and strawberries to rise five to seven days after tariffs and countertariffs take effect.

In addition, the cost of buying any food from the U.S. will be hit twice, said Prof. Vercammen. The first reason is the direct impact of Canada’s countertariff on imported food, while the second is the weakening of the Canadian dollar as a result of U.S. tariffs.

For manufactured foods from the U.S. (cereal, for example), it would take considerably longer for prices to rise.

Demand for these items would be significantly reduced if Canadian consumers substituted with available alternatives and as a result of any inventory already in Canada. “Food items already in Canadian warehouses means that prices will not rise to the full extent until this inventory has been depleted,” said Prof. Vercammen.

In general, whether price increases would be sudden depends on retailer inventory, said Jaccard Torsten, a Vancouver School of Economics professor.

“If stores have stockpiled U.S. imports prior to these tariffs coming into effect, those goods should be unaffected,” he said. “As inventory turns over to goods that were imported after the tariff change, these costs will likely be passed through into prices.”

The questions of inventory and Canadian substitutes would also determine how quickly prices rise for things such as appliances and cars. These items might increase in price in the short-to-medium term depending on inventory and supply chain shortages.

Alex Greco senior director, manufacturing and value chains, at the Canadian Chamber of Commerce said consumers might pay $8,000 to $10,000 more for a new car within weeks – if not sooner – after promised tariffs are implemented, though a lot of unknowns remain.

At the same time, some food items, such as seafood, might become cheaper for Canadians as it gets more expensive for companies to export their products. Prof. Vercammen gave the example of High Liner Foods Inc., which has a large chunk of its sales in the U.S.

“The reduced demand for High Liner products by U.S. consumers will mean more supply of High Liner seafood in Canada, and this will cause the price to drop,” he said.

Prof. Vercammen said these sorts of price reductions would likely happen within a few weeks and the size of the drop would depend on how quickly Canadian companies can pivot to overseas markets.

How long prices would stay up would depend on supply chains and how long companies believe tariffs would last, among other factors.

“The nature of the highly integrated supply chain in North America is such that even if tariffs disappear quickly … it will take many months for the effects of those tariffs to work themselves through the supply chains,” said Prof. Steinberg. “So if tariffs themselves disappear quickly, the increased price as a result of those tariffs, that’s going to stick around a lot more.”

That said, some price increases that happened quickly might also go back down at a similar pace, with gasoline being one example.