Bill Casey
Tariffs….what are they?
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This morning at breakfast, Rosie asked me to explain Tariffs. So here is what I told her.
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As an example, a lumber mill in Nova Scotia sells a 100 boards for $500 to a Home Depot in Portland , Maine.
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Meanwhile a lumber mill in Bangor, sells the same 100 boards for $500 to Home Depot in Portland, Maine.
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The Canadian mill can compete and sell the Canadian lumber.
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If the U.S.A. invokes a 25% tariff on the Canadian lumber…. when the Canadian load of lumber crosses the border into the U.S.A., Home Depot will be required to pay the 25% tariff ($125) making the cost to Home Depot $625. Now the Canadian lumber is not competitive.
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The Canadian mill does not pay the tariff, Home Depot pays the tariff. Home Depot will now choose to purchase the U.S. lumber and not the Canadian lumber.
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Now that the Canadian competition is diminished, the U.S. mill can raise their prices as well.
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The only option for Canadian businesses is to lower their prices by 25% in order to compete. I don’t know of any business that can lower their prices by 25% and survive.
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The current proposal is to put a 25% tariff on all Canadian exports to the USA. Although the current exchange rate favors Canadian products, the 25% tariff will be insurmountable for many Canadian businesses.
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Over 75% of Canadian exports go to the U.S.A. The main exports by value are:
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Energy Products (Crude Oil, Gas)
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Automotive Products (Vehicles and Parts)
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Machinery and Equipment
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Minerals and Metals (Gold, Aluminum)
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Agricultural Products (Wheat, Beef)
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Chemicals and Plastics
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Wood and Paper Products
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Fish and Seafood
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Technology Products
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This discussion does not take into consideration the exchange rates for Canadian funds.
Tariffs….what are they?
​
This morning at breakfast, Rosie asked me to explain "tariffs". So here is what I told her.
​
As an example, a lumber mill in Nova Scotia sells a 100 boards for $500 to a Home Depot in Portland , Maine.
​
Meanwhile a lumber mill in Houlton , Maine also sells the same 100 boards for $500 to Home Depot in Portland, Maine.
​
The Canadian mill can compete and sell the Canadian lumber.
​
If the U.S.A. invokes a 25% tariff on the Canadian lumber…. when the Canadian load of lumber crosses the border into the U.S.A., Home Depot will be required to pay the 25% tariff ($125) making the cost to Home Depot $625.
The Canadian mill does not pay the 25% tariff....Home Depot pays the tariff.
Home Depot will now choose to purchase the U.S. lumber for $500 and not the Canadian lumber at a cost of $625.
Now that the Canadian competition is diminished, the U.S. mill can raise their prices as well.
​
The only option for Canadian businesses is to lower their prices by 25% in order to compete. I don’t know of any business that can lower their prices by 25% and survive.
​
The current proposal is to put a 25% tariff on all Canadian exports to the USA. Although the current exchange rate favors Canadian products, the 25% tariff will be insurmountable for many Canadian businesses.
​
Over 75% of Canadian exports go to the U.S.A. The main exports by value are:
-
Energy Products (Crude Oil, Gas)
-
Automotive Products (Vehicles and Parts)
-
Machinery and Equipment
-
Minerals and Metals (Gold, Aluminum)
-
Agricultural Products (Wheat, Beef)
-
Chemicals and Plastics
-
Wood and Paper Products
-
Fish and Seafood
-
Technology Products
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In conclusion, U.S. tariffs will protect U.S. industries by making Canadian goods more expensive. While this may benefit U.S. producers, it will likely lead to higher prices for U.S consumers.
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If the 25% tariff is applied to all exports, it will have a huge impact on Canadian businesses from coast to coast. In my own opinion, this is the way President Elect Trump negotiates and the impact will be significantly less than 25% across the board. The amount of reduction from 25% will be a reflection of how successful Canadian negotiators are.
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This discussion does not take into consideration the exchange rates for Canadian funds.
