Trade war threatens Canada: Fitch

Canada would be one of the main casualties of a U.S.-led trade war that weighs on global economic output, Fitch Ratings says.

And the risk of such a trade war is on the rise.

“Aggressive tariff rises under a possible second Donald Trump presidency would likely result in a reduction in U.S. and global output,” Fitch said in a report. Trump has threatened a 10% increase in tariffs across the board, with a 60% increase on imports from China.

A unilateral increase in U.S. tariffs would reduce global GDP by 0.4%–0.8%, Fitch estimated. If U.S. trading partners retaliate, Fitch said the impact could be up to 1.1% and longer lasting.

“For the U.S.’s trading partners, the impact is greater in scenarios with retaliation, with China, and particularly Canada and Mexico, seeing the largest hits to GDP (averaging 1.8% in the worst-case scenario),” Fitch said.

Higher tariffs would also boost inflation by an estimated 0.4 percentage points in the short term, it said.

However, in the longer term, “the impact on inflation would be negative,” Fitch suggested, “as weaker demand translates to easing price pressures.”

Trump’s first presidency produced a significant rise in trade protectionism, Fitch said, noting that the overall effects of the policy was negative, “with modest declines in GDP and employment, and an increase in prices.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.