Cover photo by Bernd Dittrich on Unsplash

Tariffs: the focus of countless headlines and conversations in the last couple of months. But what exactly is a tariff in the first place?

Put simply, a tariff is a tax on imported goods that is paid by the importer — but there’s a little more to it. To gain a better understanding of how tariffs work and the impact they’ll have on our daily lives, I talked with Fletcher Baragar, associate professor in the Department of Economics at the University of Manitoba.

How do tariffs work?

Let’s use an example: the United States places 25% tariffs on all Canadian fish. An American grocer regularly imports Manitoba pickerel for $100 per crate. Once the tariffs are implemented, the grocer will have to pay an additional 25% to the American government for every crate they import — which, in this case, would be $25.

The grocer now has a few ways they could navigate this. They could stop importing Canadian pickerel, and switch to an American source (this direction to local sourcing is often a goal of implementing tariffs); take the loss, and pay the extra $25 per crate; pass the extra cost on to the consumer, by raising their prices; or some combination of the three. Baragar said most businesses will choose to raise prices.

Each of these options has different side effects for the grocer, consumers, and the economy.

How will this impact me?

So, what can we expect as tariffs are implemented both ways between the United States and Canada?

Baragar said the American tariffs won’t directly affect Canadian prices.

If American businesses pay the tariffs themselves, without raising prices, the tariffs affect American businesses. If they do raise prices, the tariffs affect American consumers. But what if they choose to stop importing Canadian goods? This is where the American tariffs could impact Canada.

If the grocer in our example decided to stop importing Canadian pickerel, the Canadian business could end up with more pickerel than they can sell, which might cause them to lower prices.

The retaliatory tariffs that Canada has responded with, however, will have a firsthand impact on Canadians — both consumers and businesses. Some products imported from the United States, Baragar said, will get more expensive.

It’s important to note that many of these price changes will be gradual, and not immediately obvious. Baragar said many businesses likely stocked up on American products before the tariffs came into effect, in hopes of delaying the impacts of the tariffs. The longer the tariffs last, the larger the impact on Canadian businesses.

Those hit hardest by the tariffs, Baragar said, will be people who are unable to switch to non-American alternatives, whether it’s due to geographical location, individual needs, or simply budget.

While a nationwide movement to buy local goods creates potential for some businesses to flourish, Baragar said the tariffs won’t be a net positive for local business owners, because most import at least some components for their products — called “inputs” — from the United States.

What’s next?

All in all, Baragar emphasized that “these are uncertain times.”

“Everyone through the economy, from consumers to businesses, producers, buyers, sellers, and governments are scrambling to anticipate what’s next — and protect themselves, insure themselves, or in some cases take advantage of a very uncertain [and] changing economic environment,” said Baragar.

Even if we knew the details of all tariffs impacting Canada, no one can be entirely sure of what comes next.

However, educated guesses have been made. The Bank of Canada estimates Canada’s GDP could fall 3% over the next two years, and the Bank of Montreal estimates Canada’s unemployment rate will rise to 8%. A technical recession in 2025 is also “in the realm of possibility,” according to the Bank of Montreal.

A technical recession is when economic output declines for two consecutive quarters, no matter the severity of the decline — the technical definition of a recession. The widespread economic decline and hardship that’s usually associated with a recession may or may not follow.

Baragar said changes in shopping patterns can also lead to changes in lifestyle, like the activities we do in our free time and on vacations.

“It is, of course, very hard to anticipate just how this may play out, but we saw a number of changes that resulted from our experience during the COVID crisis,” he said. “Evolutions in patterns of production, expenditure, and consumption can again be expected if a heavy layer of Canada-US tariffs arrives and persists. Looking forward, the possibilities are vast.”

What can you do?

Recently, a movement to buy Canadian products has seen a significant surge in popularity: buy local, and support the Canadian economy in times of uncertainty. But is it worth it, and is there anything you need to know before following suit?

According to February data from Angus Reid, four in five Canadians “say they’re buying more Canadian products in face of tariff threat.”

While the movement “can make a difference” and directly supports the local economy, Baragar said it isn’t an option for everyone. “Some items that consumers are seeking may simply not be available, or not produced, in whole or in part, by local producers.”

Retailers will likely be trying to fill those gaps, Baragar said, and it can be worthwhile to directly let them know when you’re looking for a local alternative to a product.

Canadian products can be identified by looking for signage indicating Canadian goods, reading product labels, or using barcode scanner apps.

Baragar said switching from American products to those from other countries is also an option, and may be more affordable depending on current tariffs.