Primary metals, chemicals among sectors most likely to be affected by potential Trump tariffs, says risk report

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Primary metals and food and beverage manufacturing are among the most vulnerable sectors to potential tariffs, according to a Desjardins Securities report that assesses trade exposure and U.S. dependency on Canadian products.

The chemicals, machinery and aerospace sectors are also identified as highly vulnerable.

U.S. president-elect Donald Trump, whose inauguration will take place Monday, has threatened 25-per-cent tariffs on all Canadian and Mexican imports. But economists are skeptical the Trump administration will follow through with across-the-board tariffs given the economic toll they would take on U.S. businesses and consumers.

To assess the risk of tariffs, the Desjardins report considers the share of Canadian production exported to the U.S. for various sectors. It also looks at how dependent the U.S. is on getting those products from Canada and assumes it is more likely to levy tariffs on goods it can source domestically or get from other countries.

Florence Jean-Jacobs, a principal economist at Desjardins and author of the report, notably doesn’t expect the Trump administration will impose tariffs on oil imports or auto parts.

“In the case of crude oil, U.S. production is insufficient to meet domestic needs. And with imports from Canada representing 58 per cent of U.S. oil imports, tariffs risk significantly raising prices, which would run counter to Mr. Trump’s promises to reduce energy prices,” the report says.

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The analysis also notes that the North American automotive sector is highly integrated, making the U.S. dependent on parts manufactured in Canada.

As for primary metals such as iron, steel and aluminum, Ms. Jean-Jacobs said in an interview that the risk of tariffs is more elevated because there’s a precedent for them. The first Trump administration imposed a 25-per-cent tariff on Canadian steel and a 10-per-cent tariff on aluminum imports.

According to the report, Canada exports 41 per cent of its primary-metal production to the U.S., which is equivalent to about $44-billion. That means if tariffs reduced U.S. demand by 10 per cent, revenues for that sector could fall about 4.1 per cent.

Other sectors that could be affected by tariffs include wood, plastic and rubber products, as well as non-ferrous metals, according to the report.

It’s still unclear how Mr. Trump plans to implement tariffs and whether he will make good on his promise of a blanket 25-per-cent tariff on all imports. After wrapping up a visit to Washington, Natural Resources Minister Jonathan Wilkinson told reporters Thursday that he’s hearing the incoming administration is considering two other options as well: a 10-per-cent tariff on imports from all countries or an escalating tariff that starts low and rises over time.

With Mr. Trump’s inauguration just days away, Canadian officials are preparing retaliatory measures. Prime Minister Justin Trudeau’s government has repeatedly stressed to the incoming administration that tariffs would affect the U.S. economy as well. Mr. Wilkinson said the federal government is considering a tariff on critical-mineral exports, though he didn’t specify which ones.

Ms. Jean-Jacobs said businesses hit by tariffs will have to redirect their products elsewhere to compensate for reduced U.S. demand. For workers, tariffs could mean layoffs. There are also “cascading effects” to consider for businesses dependent on sectors that are vulnerable for tariffs, she said.

Whether or not tariffs come into place, Ms. Jean-Jacobs said a protectionist president in the White House means trade diversification has become increasingly important for Canada.

“Diversifying away from the U.S. is certainly a no-regret move at this stage,” she said.

With reports from Steven Chase and Niall McGee