How US tariffs could impact businesses in Quebec
A recent study from consulting firm Aviseo and law firm BCF examined how US tariffs could impact the Quebec economy and what can be done to mitigate the damage.
US President Donald Trump last week announced that broad-based 25% tariffs will be enacted on Canadian imports starting on March 4. Tariffs were previously delayed for one month after Canada made promises to upgrade its border security.
RBC estimates that a 25% increase in US tariffs will reduce Canadian GDP by -3.4% to -4.2% and cause a recession. Canada is deeply reliant on its trade relationship with its southern neighbour: three-quarters of Canadian exports go to the US, while American goods account for over half of imports to Canada.
Moving down to the Quebec provincial level, exports account for 32% of GDP, with nearly half going to the US. The BCF/Aviseo study says that nine sectors – representing 100,000 workers and 4.3% of provincial GDP – are most vulnerable to US tariffs. Chief among them is aluminum, alongside other commodities such as wood and manufacturing industries such as automotive and aerospace.
"Ensuring the growth of organizations means helping them understand and anticipate the risks so they can innovate and adapt to rapid changes in the market and its uncertainties while seizing new opportunities,” said Julie Doré, managing partner at BCF.
The study proposes four recommendations to help mitigate the impact of tariffs. Export market diversification is one option, with the easing of interprovincial trade barriers being an important avenue. Remaking heavily entrenched supply chains and trade routes is not something that can be done easily or quickly, however.
The next recommendation is lowering corporate taxes in Quebec from the current 6.6% of GDP to the OECD average of 4.3% of GDP.
The study also warns against reciprocal tariffs, which would raise the cost of inputs and production equipment. The federal government will almost certainly do so – as shown by the Canadian list from the first round of tariff threats, which even hit staples like meat, vegetables and fruit (Canada imports approximately half of its food from the US). Canadians have obviously been suffering from persistent heavy inflation in food prices, and the government’s unwillingness to spare this area is indicative of the probable broadness of retaliatory tariffs.
Lastly, the study suggests setting up a “collaboration mechanism,” such as holding a Quebec-United States summit with a broad swath of institutions, business leaders, and academics. The utility of anything like this is suspect due to the ultimately federal nature of international trade agreements and the irrational and aggressive policy stances of the Trump administration.
