Tariffs Q&A: Nine things to know about Canada’s retaliatory tariffs

The Canadian government has responded to the Trump administration’s decision to apply tariffs on steel and aluminum by imposing retaliatory tariffs effective Sunday on $16.6 billion worth of American imports.

The final list includes a 25 per cent surtax on semi-finished goods including steel products and a 10 per cent tariff on a range of consumer goods including orange juice and coffee.

Here are some details about the mechanics of how the tariffs will be collected and their possible impact on consumers:

How significant are the import tariffs?
The $16.6 billion worth of annual tariffs account for about six per cent of the $294 billion total value of goods imported from the United States. The 10 per cent rate on consumer goods represents about 70 per cent of goods impacted by tariffs.

How will the tariffs be collected?
As with tariffs and duties charged on other imports, they won’t be paid at the border or port but later by the importer of record (wholesaler, retailer, etc.). The surtax is calculated on the Canadian value of the imported good and is subject to the Goods and Services Tax, says Jim Sutton, a vice-president with the Canadian Association of Importers and Exporters.

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The bonded importer has to account for the tariff within five business days of the item being released by customs and paid at the end of the following month. The Canada Border Services Agency says the surtax will not apply to U.S. goods that are in transit to Canada before July 1.

Canadian travellers will be required to pay the surtax on qualified goods if the value of what they are bringing back to the country exceeds their personal exemption.

How will the collected tariffs be used?
The Canada Border Services Agency will collect the tariffs and transfer the money to the federal government’s general revenues. The proceeds can then be used to offset the cost of a series of initiatives to support Canadian companies and workers that are negatively impacted by U.S. tariffs.

What products have been removed from the list of tariffs?
Since the initial list was released June 1, the government has removed beer kegs along with nut purees and pastes, berry and fruit purees, jams and jellies (other than banana puree and strawberry jam) and prepared mustard. Also removed are aluminium wire, aluminium foil of a thickness not exceeding 0.2 mm, aluminium tubes and pipes, aluminum stranded wire and cables that are not electrically insulated, along with boards, panels, consoles, desks, cabinets, equipped for electric control or the distribution of electricity.

How will tariffs impact retail prices?
The Canadian tariffs won’t have much of an impact on consumer prices, Krishen Rangasamy of the National Bank of Canada wrote in a report. He said importers are unlikely to pass on to consumers the higher costs on items such as steel and aluminum. And if costs are passed on, he said the “impacts are set to be minimal” and increase the consumer price index by just 0.1 per cent or so.

“In other words, while there are many things to worry about with regards to protectionism, higher consumer prices should be at the bottom of the list, unless of course the Canadian dollar takes a deep enough dive as to cause a surge in import prices.”

Will a 10 per cent tariff raise prices by 10 per cent?
Cost of goods is just one component of retail prices along with other things like labour, utilities, rent, marketing and advertising. So any impact on retail prices would be lower than the 10 per cent tariff rate, said Karl Littler of the Retail Council of Canada.

Will retail prices rise due to tariffs?
Littler says he doesn’t believe retailers are going to eat the higher costs over the long haul because retail is already a thin margin business. Sutton says some importers may have to initially absorb some of the higher costs because it takes time before changes are made in supply chains.

How can consumers avoid higher prices?
Consumers who switch their purchases from American goods subjected to tariffs to alternatives from other countries can avoid the tariff impact on prices, says Littler.

“So the consumer, if they’re not deeply brand-attached and presuming that there’s a sufficient flow of alternative choices, may not have to pay the tariff at all,” he said.

How will tariffs affect the economy?
The bigger issue than tariffs is the continuation of a trade war between Canada and the United States that affects the overall economy, hurts consumer confidence and starts to reduce consumer spending, says Littler.

“So it’s not just a price impact on the shelf where to some degree there may be substitutability, it’s about shrinking wallets as well.”

Ross Marowits, The Canadian Press