US-Canada trade war worry 

Minister of Finance Ryan Straughn is concerned about the “collateral damage” that Barbados could suffer as the United States (US) and Canada weaponise tariffs in an historic trade war.

After trade talks between the two neighbours broke down, the US announced the imposition of tariffs on some Canadian goods it imports and Canada has retaliated by introducing taxes on some American merchandise it buys.

Straughn said that with Barbados doing business with both countries, and also having a significant disaspora among their populations, fallout for the island could not be ruled out.

This included logistical and other challenges for Barbadian importers shipping goods from the two nations and domestic producers who sell
items to the US or Canada.

“There is always collateral damage with these things, and I say that because on one hand we still have to engage our diaspora in these jurisdictions, and the reality is that there is a very strong logistical link between both countries, and therefore goods moving across the borders or not moving across the borders impacts the economy,” he told Barbados Business Authority.

“So if we are selling into either of those markets, then obviously from there they are being distributed elsewhere, because a smart retailer, someone wanting to get their products into the space, would utilise the full logistical system that’s available across North America.

“If you think about how Amazon works, just as a company, then you would appreciate how important logistics is in relation
to how consumerism works in North America.”

Straughn said this meant that “the reality of it is that anything that increases costs, anything that reduces demand, by the same token, is a problem” which could impact Barbados.

“Now there are opportunities, of course, within these things, but the question will always come down to how our people are able to scale and get the goods into the market in different ways than they ordinarily would have done before,” he stated.

“But I think as long as you have a tit-for-tat type of approach and that kind of thing, then it really doesn’t bode well for Barbados’ traders because at the end of the day people want certainty in relation to their transactions.

“If our people can see opportunities to be able to take advantage of the situation on either side of the border, I still don’t think that we are out of the woods because at any given point in time, tariffs can be applied to us relative to the third party country,”
he noted.

The minister added: “And so it’s really not a good scenario. We do import, and this is where I was speaking in relation to the change of logistics and the like. The reality is that there are hubs established across North America that allow people to take advantage of the logistics.

“That being said, if the people that are importing here, or the people that we are exporting our goods to, are using those hubs, then you regretably get caught up in that hard battle, and that’s something that is not good for business results in Barbados.”

In a commentary on the US-Canada trade war, credit rating agency Fitch Ratings said that Canada’s retaliatory tariffs on about CAD$27.6 billion of US imports took effect on September 8, matching dollar for dollar the 50 per cent tariffs that the US imposed on August 22 after bilateral talks collapsed.

“The US responded by imposing a ban on a broad range of goods, from alcoholic beverages, to motorcycles, dairy products, aluminum and furniture,” Fitch stated.

“The recent US tariffs cover roughly five per cent of Canadian goods exports to the US. The measure excludes energy, potash, critical minerals, fish and goods already subject to . . . duties. Canada matched this on September 8 with tariffs of 15 per cent, 25 per cent and 50 per cent on about 700 US product lines.

“These goods account for about seven per cent of US goods exports to Canada and include steel and aluminum, dairy, appliances, agricultural equipment and pulp and paper. Canada also raised its existing counter-tariffs on steel and aluminum to 50 per cent from 25 per cent.”

Fitch said that the “US buys about 70 per cent to 75 per cent of Canadian goods exports, equal to close to 20 per cent of Canada’s GDP”.

“By contrast, US goods exports to Canada account for about 15 per cent of total US goods exports and about one per cent of US GDP. Canada therefore faces much larger trade exposure,” it added.

“Even so, political considerations may limit how much this asymmetry strengthens the US negotiating position.”

At this stage of the trade war, Fitch said that “the direct macroeconomic and credit impact on Canada from tariff escalation with the US”.

It said Canada’s  ‘AA+’/Stable rating “can absorb the measures in their current form, though further escalation could pressure credit profiles both at the federal and provincial levels”.

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