Indirect effects of tariffs ‘more significant’ than 35 per cent headline says supply chain expert

An automotive expert believes the headlines surrounding tariffs is dramatic. CTV Windsor’s Ricardo Veneza reports.

The latest tariff announcement from the Oval Office shouldn’t be cause for panic for communities like Windsor on the frontline of the White House-launched trade war, according to an auto sector expert.

In an interview with CTV News, Ivey Business School professor and Chair of the Leenders Supply Chain Management Association, Fraser Johnson, said Canada’s economy has proven surprisingly resilient.

“The headline is more dramatic than the actual effect,” said Johnson. “I’m optimistic about what’s going to happen. I think it’s going to take some time. But I think generally what we’re seeing is probably a best-case scenario economically.”

On Thursday, President Donald Trump signed an executive order upping across-the-board tariffs to 35 per cent from 25 per cent.

However, Johnson says Canadian exports into the U.S. are seeing an effective tariff rate of about 5 per cent with the Canada-U.S.-Mexico Agreement (CUSMA) helping to keep American tariffs at bay for more than 90 per cent of goods.

Despite the silver lining amid heightened economic concern, Johnson points to sectoral tariffs — like the 25 per cent U.S. import tax on autos and auto parts — as the real drivers of pain being suffered in Windsor and Southern Ontario.

“The indirect effects, I would argue, are more significant because it just clouds business certainty,” said Johnson. “It creates an environment where businesses are hesitant to make investments in capital, hire new people, invest in research and development and ultimately that stifles innovation.”

While supply chain disruptions aren’t expected to match the turmoil seen during the height of the pandemic, there are still jobs at risk as the knock-on effects of higher costs are realized and a tariff agreement remains out of reach.

Johnson points to the supply-side employment of the auto sector with upward of 90,000 people filling those roles supporting the roughly 30,000 people assembling vehicles in Canada.

“Unless businesses have some clarity in terms of what the economic climate is going to look like, they’re not going to want to go to the board of directors and ask for money to be able to invest in the business,” said Johnson. “Right now, the big three automakers are really being disadvantaged compared to the arrangements that have been made with both Europe and Japan.”

And job security isn’t just a concern in Canada.

The American workforce will also feel the pinch as their pay takes a tariff-induced hit.

“Part of the compensation of the UAW members is profit-sharing and if the profits of the big three are being hit by tariff related costs, that’s going to hit them right in the pocketbook,” said Johnson.

As far as Johnson is concerned, Prime Minister Mark Carney’s approach is the right one and suggests ignoring calls for retaliation like those from Premier Doug Ford.

“I think Carney is doing the right thing by not retaliating and keeping his head down,” said Johnson. “There’s really no upside.”