Expert warns of ‘protracted trade war’ as Trump tariffs on Canada, Mexico and China take effect

The trade war with the United States’ closest neighbors kicked off Tuesday, with 25% tariffs levied against the goods from Canada and Mexico and another 10% on products from China.

While it may take some time for Spokane residents to feel the effects, higher prices are sure to follow, and Washington farmers may soon find it more difficult to sell their crops abroad, said Grant Forsyth, the chief economist for Avista Corp.

The most immediate impact Tuesday was a jolt to retirement accounts. The stock market on Tuesday suffered another slide after sharp losses on Monday.

The Dow Jones Industrial Average slid 670 points, or more than 1.5%; the S&P 500 shed 71 points and dropped 1.2%; while the tech-heavy Nasdaq dipped more 65 points finishing more than .3% lower.

“I don’t think anybody should be surprised that the market has reacted the way it has,” Forsyth said. “The market had been hoping that the Trump administration was going to extend again the deadline when these tariffs were imposed.”

It appears that some companies have already raised prices in anticipation of President Donald Trump’s move, he said.

“If this doesn’t resolve itself quickly, I could easily see prices rising the month that the tariff was applied,” Forsyth said. “Within two months, we will see prices increasing to materialize at either the consumer level or the business level.”

Forsyth said it remains a mystery how long Trump will keep the tariffs in place.

“What’s the pain point before the Trump administration blinks a bit? The answer is, I don’t know,” he said. “For me, it’s unclear how long this lasts.”

Trump didn’t appear to be backing away on tariffs in his address to Congress Tuesday night and said his tariff policy is promoting more car manufacturing in the United States.

“Plants are opening up all over the place. Deals are being made,” Trump said in the address to Congress. “That’s a combination of the election win and tariffs. It’s a beautiful word isn’t it? That along with our other policies, will allow our auto industry to absolutely boom. It’s going to boom.”

Canadian Prime Minister Justin Trudeau, in an online post, warned that the tariffs are “going to hurt all of us.”

He further said that Trump’s stated reason for the tariffs to reduce fentanyl flowing in from Canada was “completely bogus.”

“So we actually have to fold back on the one thing he has said repeatedly: that what he wants is to see the complete collapse of the Canadian economy because that will make it easier to annex us. … That’s never going to happen,” Trudeau said.

Trudeau said that Canada will impose tariffs on roughly $107 billion worth of U.S. products. About $21 billion worth of those goods would be hit immediately, he said, with the rest taking effect in 21 days, according to the Washington Post.

Trump, responding in a social media post, said U.S. tariffs “will immediately increase by a like amount” to any reciprocal tariff from Canada.

While Canada and Mexico tariffs were raised by 25%, Trump increased tariffs on Chinese products by 10 percentage points, bringing the total tax on some Chinese products to 45%.

China responded to Trump’s move and imposed tariffs of up to 15% on a raft of U.S. farm products and blacklisted more than 20 U.S. companies. The move, similar to actions taken during Trump’s first term as president, targets some of the United States’ most important exports to China, including soybeans, meat and grains.

Washington farmers

Sen. Maria Cantwell, D-Wash., blasted Trump’s trade policy during a Senate floor speech.

“Trump said to our farmers yesterday on Truth Social, quote, ‘Tariffs will go on external products on April 2. Have fun.’ End quote,” Sen. Cantwell said. “’Have fun?’ ‘Have fun?’ When retaliatory tariffs strike our farmers – just as they did in the first Trump administration – it’s not going to be fun, it’s going to be a nightmare for our farmers.”

During Trump’s first administration, a trade war with China resulted in more than $28 billion in bailouts for U.S. farmers after China targeted commodities.

Forsyth said the same thing could occur with the latest round of tariffs.

Forsyth said farmer-trade organizations have worked sometimes for years to build connections that expand markets for things like Washington wheat and apples.

“I think the farming community is nervous about this, the undoing of decades of work to build these relationships with foreign buyers because that’s where the growth was,” he said. “This is upsetting the apple cart, excuse the pun. The longer this trade war lasts, the more damage is done.”

Any reciprocal tariffs by Mexico and Canada will make American commodities more expensive, which could lead to Washington farmers losing markets, Forsyth said.

“The foreign buyers start to look for alternative avenues for getting their food products,” he said. “There are a lot of countries ready to jump into this and basically fill the gap, as it were, to get their commodities pushed into areas where America had been the dominant supplier.”

He noted that China again targeted farm products with its tariff announcement on Tuesday.

“Specific to the structure of Washington, trade wars are going to be particularly hard on us,” Forsyth said. “It puts (farmers) largely at a disadvantage on pears, apples, you name it. The structure of the economic activity in this state really puts us at risk for a protracted trade war.”

Energy

Forsyth said lots of natural gas and petroleum flows to utilities in the U.S. While he could not specifically talk about Avista, Forsyth said a trade war could cause higher prices for customers who rely on those utilities.

“There is a lot of trade between U.S. and Canada in natural resources,” Forsyth said. “The utility industry, especially the closer it is to the Canadian border, the more relationship we have with Canadian energy. There is a lot of natural gas, and a certain amount of electricity from Canada is moved into the U.S.”

And while Trump has said he hopes to use tariffs to generate revenue for the U.S., Forsyth said that plan may backfire.

“If you have a prolonged trade war, there’s a good chance it could lower everybody’s growth,” he said. “You might be collecting some new revenues through the tariffs, but if you have a slowdown in growth that also reduces your tax collections are you better off in the aggregate? I’m not convinced you would be.”