Posthaste: If a 15% tariff is the ‘new normal,’ would that be a ‘bitter pill’ for Canada?

Fifteen per cent seems to be the new magic number being bandied about for a U.S.

tariff rate

after Japan and the Americans announced a trade deal, with the European Union and South Korea apparently headed in the same direction.

With the Aug. 1 deadline to make a trade deal with the United States rapidly approaching, “it seems the U.S. is intent on raising the stakes,”  Jeremy Stretch, chief international strategist at CIBC fixed income currencies and commodities, said in a note Thursday after U.S. President Donald Trump indicated his latest intention around tariffs was to “have a straight, simple tariff of anywhere between 15 per cent and 50 per cent” with the higher rate probably targeted at countries that “we (the U.S.) haven’t been getting along with.”

If 15 per cent is the “new normal” as Stretch wondered, what does that mean for Canada?

“First of all, we have to be sure that that’s actually going to apply to Canada as well,” Douglas Porter, chief economist at BMO Economics, said, noting that Canada has been in a “really different situation” from most other countries.

For example, the “vast” majority of exports to the U.S. are not being tariffed if they are compliant with the

Canada-U.S.-Mexico Agreement

(CUSMA).

Then there are the outliers including

steel

and

aluminum

, currently being tariffed at 50 per cent and the non-U.S. produced portions of vehicles facing duties of 25 per cent.

“If we were to apply a 15 per cent tariff across the board, I would actually say on net, that would be bad news,” Porter said, adding that BMO currently estimates that the average effective tariffs rate for Canadian exports to the U.S. is seven per cent, based on the weighted average of what was exported last year.

“I suppose the counterpoint is maybe we’re headed for something worse when the president really turns his attention to reviewing the (CUSMA) and maybe 15 will end up not being such a bad spot. But that said that would be a tough pill to swallow for Canada,” Porter said.

Michael Davenport, Canada economist at Oxford Economics, said 15 per cent “would be a positive development” instead of the 35 per cent Trump threatened to hit all non-compliant CUSMA imports with starting on Aug. 1 if no trade deal is reached.

“I think it’s hard to say whether or not that’s ultimately where the level of tariffs are going to settle, particularly for Canada. We’ve seen the negotiations with Canada and Mexico be a little bit different,” Davenport said, citing the CUSMA exemptions.

Also, when Trump unveiled his reciprocal tariff bombshell on April 2, Canada and Mexico were exempt from tariffs that ranged from 10 per cent to as high as 50 per cent, depending on the country.

Oxford has a base case for Canadian trade talks with the U.S. which assumes that CUSMA will be renegotiated and that most trade will be tariff-free except for 10 per cent duties on base metals including aluminum and steel and some agricultural products and “that’s because those are the areas that it sort of makes the most sense for the U.S. to continue to pursue higher tariffs against Canada,” Davenport said.

But, Aug. 1 remains crucial to the path trade pursues.

“We really think that the trade deal is at a crossroads, right? And depending on what happens between now and Aug. 1, we could see improved prospects for growth or a gloomier and worse economic outlook,” he said.

 Sign up here to get Posthaste delivered straight to your inbox.

• Today’s Data: U.S. durable goods orders, Kansas City Fed services activity, Bloomberg July Canada and U.S. economic survey
• Earnings: Xerox Corp., American Airlines Inc., Macy’s Retail Holdings LLC, Six Flags Entertainment Corp. Go Daddy Operating Co. LLC

• Are two central bankers better than one? Canada will find out with Carney-Macklem duo
• CRA denies taxpayer a break on $33,000 of spousal support
• Trump trumpeted 90 trade deals in 90 days. How about 5 in 105?

More than two years after the

failure of three banks

in the United States, Ottawa has explored increasing the insurance coverage for bank deposits in Canada to $150,000. Find out

here

what that could mean for you and whether it would protect your money.

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at

wealth@postmedia.com

with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).

McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s

Financial Post column

can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his

mortgage rate page

for Canada’s lowest national mortgage rates, updated daily.

Financial Post on YouTube

Visit the Financial Post’s

YouTube channel

for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at 

posthaste@postmedia.com

.

• The hidden costs of the ‘Buy Canadian’ movement
• Food manufacturers take drastic measures to fight U.S. tariffs

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here