Tariffs and how it will affect the Canadian Real Estate market

When Donald Trump won the election in November 2024, he vowed to impose tariffs on Canada, China, and Mexico, which together account for 45% of US imports as of 2022. 1 Concerns have arisen about the impact on the Canadian economy and the flow of Canadian goods into the U.S. Despite negative news, I believe the effects won't be as severe as predicted. People will adapt; tariffs alone won't stop everyone from buying homes.

To understand the effects of tariffs, it is essential to examine their history, particularly within the automobile industry. In 1904, Henry Ford established his first manufacturing plant in Canada, initiating the production of Ford cars there. Notably, this strategic move was made to circumvent a 35% tariff on imported goods into Canada. By the 1960s, a streamlined trade agreement was necessary to boost production and job creation, focusing on one continent rather than two separate countries.Consequently, in 1965, the Canada – United States Auto Parts Agreement was created, serving as a precursor to NAFTA (North American Free Trade Agreement) by effectively removing tariffs between Canada and the United States. In 2001, NAFTA superseded the 1965 agreement. 2

Contrary to initial concerns that free trade would adversely impact the Canadian economy, it led to an increase in manufacturing and job opportunities. Prior to the Auto Pact in 1963, 632,000 cars were manufactured, with 921 units exported to the United States. By 1973, with the Auto Pact fully operational, production rose to 1,589,000 cars, with 1,092,000 units exported to the United States. 3 Furthermore, as a result of free trade, Canada's income increased by 15 to 40%, and there was a notable improvement in the variety of goods and services available. 4

If companies like Ford can make their cars cheaper in the U.S., they would have done that a long time ago. There is a reason why they are making cars in Canada and Mexico. According to RBC Economists Mike Reid and Carrie Freestone, bringing back operations to the States would be prohibitive given the higher interest rates. It could take years to set up operations in the States after spending a lot of capital building operations in Canada and Mexico.5 The same goes with steel and aluminum. We can make it cheaper than the U.S.

The biggest concern about free trade is the loss of Canadian jobs to the U.S. and Mexico. Tariffs were thought to protect jobs in Canada. People in favor of free trade were mainly people who sell their goods to the U.S. These people thought Canada needed to increase its competitiveness in an increasingly global environment. It will attract jobs, increase foreign investment and give better access to American consumers. To be fair, jobs were lost because of free trade. For example, the Inglis plant closed after free trade became law. However, investment in Canada has increased. Also, imports and exports have increased as well. 6

According to Statista, U.S. Foreign Direct Investment in Canada increased from $132.47 Billion in 2000 to $451.56 in 2023. 7

Statistics Canada statistics showed an increase of North American Foreign Direct Investment from $86,375 million in 1991 to $621.336 million in 2023. 8 According to Statistics Canada Exports increased from $348.1 Billion in 2004 to $594.2 Billion in 2023. Imports increased from $209 Billion in 2004 to $373.7 Billion in 2023. 

The GST

When Brian Mulroney introduced the GST in 1991, it caused significant reactions. Businesses were concerned due to necessary adjustments, and consumers feared it would lead to higher taxes. Additionally, the tax was implemented during a recession, causing businesses to worry about their future. Some predicted a short-term decrease in business by 10% before people would adapt. Over time, Canada has adjusted to the GST, and despite current challenges, the country has performed reasonably well over the past 30 years. 10 In 2011, the GST turned 20 and many economists thought, despite the opposition, was Brain Mulroney’s best move because it was a consumption tax that saved on income taxes for the average Canadian and it helped paid down the National Debt. 11

Changes occur constantly, both domestically and internationally. While external events are beyond our control, we can make decisions within our own capacity. The impact of tariffs on the economy is uncertain and may be negative. However, like the introduction of GST and free trade, people are likely to adapt. Although adjustments may not be preferred, they seem inevitable given the limited alternatives.

1 Reuters February 5 th 2024, https://www.reuters.com/markets/commodities/by-numbers-us-mexico-canadachina-trade-braun-2025-02-04/, Author: Karen Braun

2 Detroit Free Press February 4 2025, https://www.freep.com/story/money/cars/2025/02/04/canada-mexico-usauto-manufacturing-history-ford-gm-chrysler/78182033007/ Author: Jackie Charniga

3 Detroit Free Press February 4 2025, https://www.freep.com/story/money/cars/2025/02/04/canada-mexico-usauto-manufacturing-history-ford-gm-chrysler/78182033007/ Author: Jackie Charniga

4 The Bank of Canada, The Benefits of Freer Trade, The benefits of freer trade - Bank of Canada, Author: The Bank of Canada

5 Financial Post March 6 2025, https://financialpost.com/news/trump-tariffs-threaten-u-s-economy, Author: Pamela Heavon

6 CBC New Economic Realities, Bringing down the barriers,

https://www.cbc.ca/history/EPISCONTENTSE1EP17CH3PA2LE.html#:~:text=Opponents%20argued%20that%20Canadian%20manufacturers,free%20trade%20meant%20to%20them.,Auther: CBC News

7 Statista Foreign direct investment position of the United States in Canada from 2000 to 2023,

https://www.statista.com/statistics/1398571/united-states-direct-investments-canada-us/, Author Statistica

8 Statistics Canada International investment position, Canadian direct investment abroad and foreign direct investment in Canada, by country, annual,

https://www150.statcan.gc.ca/t1/tbl1/en/tv.actionpid=3610000801&cubeTimeFrame.startYear=1991&cubeTimeFrame.endYear=2023&referencePeriods=19910101%2C20230101 Author: Statistics Canada

9 Statistics Canada, International Trade Explorer, https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607- x2019005-eng.htm, Author: Statistics Canada

10 TVO Today March 4 2024, https://www.tvo.org/article/mean-spirited-right-wing-ideology-why-canadiansrebelled-against-mulroneysgst#:~:text=The%207%20per%20cent%20GST,public%20was%20generally%20unaware%20of., Author: Jamie Bradburn

11 CBC news December 29 2010, https://www.cbc.ca/news2/pointofview/2010/12/gst-was-it-the-right-move-atthe-time.html, Author