Ottawa’s counter-tariffs, not Trump, are hurting Canada’s food economy
Recently, in Canadian Grocer, Sylvain Charlebois wrote an article that raises important questions about the effectiveness and consequences of Ottawa’s counter-tariff measures in response to U.S. protectionism. While taking a stand against unfair trade practices may seem necessary, the strategy behind such actions—and their impact on Canada’s food economy—deserves closer scrutiny.
Should Canada Take a Stand?
Trade disputes often require countries to defend their economic interests. However, the way Canada has chosen to respond—with counter-tariffs—has led to significant challenges for its food processing sector. Unlike China, which has a larger, more self-sufficient economy and greater leverage in trade disputes with the U.S., Canada’s economy is deeply intertwined with that of its southern neighbor. The U.S. accounts for a significant portion of Canadian exports, and many major consumer packaged goods (CPG) companies operate across both countries. This interconnectedness makes retaliatory tariffs a double-edged sword.
The Impact of Counter-Tariffs
Ottawa’s counter-tariffs are creating ripple effects throughout the Canadian food supply chain:
- Rising Costs: Tariffs on U.S. food ingredients and inputs like aluminum and steel are increasing costs for manufacturers. While large multinationals can absorb or pass on these costs, smaller, regionally based processors are struggling with cost increases of 15% to 25%, threatening their survival.
- Limited Relief: Smaller manufacturers often don’t qualify for tariff relief because they purchase ingredients through intermediaries rather than directly importing them. This design flaw excludes many businesses from accessing rebates or refunds.
- Food Price Inflation: Higher costs are being passed on to consumers through grocery retailers, contributing to entrenched food price inflation.
- Reduced Innovation: Smaller processors facing financial strain are cutting back on innovation and new product development, leading to fewer choices for consumers and less competition in the market.
Alternatives to Counter-Tariffs
Canada does have other options beyond retaliatory tariffs:
- Negotiated Solutions: Pursuing diplomatic negotiations with the U.S. to resolve trade disputes without escalating tensions could yield better long-term outcomes.
- Targeted Measures: Instead of broad counter-tariffs, Canada could implement more focused measures that directly address specific U.S. protectionist policies without harming its own industries.
- Support for Domestic Producers: Providing direct subsidies or tax incentives to Canadian food manufacturers could help offset the impact of higher input costs without distorting trade.
- Diversifying Trade Partners: Reducing reliance on the U.S. by expanding trade relationships with other countries could provide greater economic resilience.
Is There a Political Strategy?
The article suggests that Ottawa’s counter-tariff strategy may be more about political optics than sound economic policy. Taking a tough stance against U.S. tariffs could appeal to voters who want their government to defend Canadian interests, but this approach risks undermining the very sectors it aims to protect. If the government’s goal is re-election rather than long-term economic stability, this could explain why current policies appear more symbolic than strategic.
Conclusion
While standing up to U.S. trade policies is important, Canada must carefully evaluate its approach to avoid unintended harm to its own economy—particularly its vulnerable food processing sector. A smarter strategy would involve targeted measures, robust support for domestic producers, and efforts to reduce dependency on U.S. markets. Rolling over is not an option, but neither is self-sabotage disguised as political bravery. At Culture Advisory Group, we can help in the area of support for domestic producers. We help in accessing funding that can help offset the impact of these higher costs. Reach out to bdooley@cultureadvisorygroup.com to learn more.
