The Canadian dollar took a drubbing after U.S. President Donald Trump ramped up criticism on Prime Minister Justin Trudeau and threatened the county with additional tariffs, following a less than successful Group-of-Seven (G7) meeting in Quebec. Of particular concern is Trump targeting Canada’s automobile sector. Trump continues to rail against Canada’s dairy industry.
On the afternoon of June 9, Donald Trump tweeted,
“Based on Justin’s false statements at his news conference, and the fact that Canada is charging massive Tariffs to our U.S. farmers, workers and companies, I have instructed our U.S. Reps not to endorse the Communique as we look at Tariffs on automobiles flooding the U.S. Market!”1
One minute later, Trump tweeted,
“PM Justin Trudeau of Canada acted so meek and mild during our meetings only to give a news conference after I left saying that, ‘US Tariffs were kind of insulting’ and he ‘will not be pushed around.’ Very dishonest & weak. Our Tariffs are in response to his on dairy!”2
Impact on Canadian Auto Industry
If Trump hits the Canadian auto industry with tariffs it will have a major impact on the Canadian economy.3
- The auto industry contributes over $20 billion to Canadian GDP
- Auto and parts production accounts for almost 17% of Canadian manufacturing sales
- In Ontario alone, transportation equipment manufacturing is 20.2% of GDP
- Direct and indirect jobs from auto industry estimated at 500,000
- Vehicle are the top Canadian export, valued at $64.6 billion; 95% exported to the U.S.
Trumps Attack on Canada’s Dairy Industry
In an effort to appease the country’s dairy farmers, he has attacked Canada’s dairy industry, calling it a “disgrace” and blamed it for hardships facing U.S. farmers.
The entire trade in dairy products between Canada and the U.S. is pretty small compared to the auto industry, worth less than $780 million.4 Still, Trump believes it is something to attack. His biggest issue of course is that Canada’s production quotas and import tariffs ensures Canadian dairy, egg, and poultry farmers, get fair prices for their goods.
The same production quotas do not exist in the U.S.
In 2016, Canadian farmers got an average of around $0.79 for a litre of milk, compared with $0.49 on average, for U.S. farmers. Meanwhile, in 2017, American farmers poured almost 100 million gallons of surplus milk down the drain.
Chrystia Freeland, Canada’s trade minister, refuted Trump’s claims that Canada’s supply management system is derailing the U.S. dairy industry. In 2016, Canada imported U.S. dairy products worth five times more than the amount Canada exported to the U.S.
Again, Trump believes he is speaking up for the struggling American dairy farmers; but they don’t want him to. The president of the Wisconsin Farmers Union said recently that they want a supply-management system like the one in Canada.
Whether it’s a major cash cow like the auto industry or a smaller driver of the Canadian economy, like the dairy industry, President Trump is going to hit it with tariffs to make it look like he’s sticking up for the American economy and its workers. This could spell trouble for the Canadian economy and the Canadian dollar.
A trade war might start out with tariffs on aluminum and steel, but thanks to retaliatory measures, it ends up affecting every corner of the economy.
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- “@realDonaldTrump,” Twitter, June 9, 2018; https://twitter.com/realDonaldTrump/status/1005586152076689408?ref_src=twsrc%5Etfw.
- “@realDonaldTrump,” Twitter, June 9, 2018; https://twitter.com/realDonaldTrump/status/1005586562959093760?ref_src=twsrc%5Etfw.
- “How Canada’s Auto Industry Contributes To The Economy,” Canadian Vehicle Manufacturers’ Association, last accessed June 11, 2018; https://www.cvma.ca/wp-content/uploads/2017/03/Website-WP-Important-Facts-Pdf-March-23-2017.pdf.
- Barber, J. “Why Canadian milk infuriates Donald Trump,” The Guardian, June 9, 2018; https://www.theguardian.com/world/commentisfree/2018/jun/09/milk-canada-us-trade-war.
Photo Credit: iStock.com/DoraDalton