Economic experts: In trade wars, the closer the relationship, the bigger the consequences

When countries enter a trade war, its effects depend in part on how close the nations are, in terms of geography and their existing economic relationship, Dan Ciuriak, a former Canadian government economist who now runs a consulting firm, told a committee of state and provincial legislators in July.
Few, if any, two nations in the world are more closely knit than Canada and the United States — a fact that would seem to point to major economic consequences if the two countries’ use of tariffs and retaliatory tariffs continues to escalate.

“The economic impacts have not really begun to be felt [by most consumers],” Ciuriak said during a discussion that he helped lead at the Midwestern Legislative Conference Annual Meeting. At risk is a vibrant cross-border partnership in which $674 billion worth of goods and services were traded between the two countries in 2017. 
A primary goal of the United States in imposing recent tariffs on goods such as steel and aluminum is to “bring value chains back to the U.S.,” Sherman Robinson, an economist at the Peterson Institute for International Economics, told the MLC’s Midwest-Canada Relations Committee. But reaching this goal means upending established global supply chains, including those in place among the three countries of the North American Free Trade Agreement: Canada, Mexico and the United States.
Supply chains are networks of suppliers that add components (and value) to a product, ultimately resulting in a finished product. For example, U.S. and Canadian companies have been making cars and agricultural products together thanks to open-market policies that enabled the rise of binational supply chains.
According to Robinson, creating domestic-only supply chains “could be done in the long run, but it is impossible to do in the short run.” In some cases, for example, foreign suppliers provide specialty products that are not made in the United States.
Robinson warned, too, that the United States is not “the powerhouse of global trade that we once were.” (As a whole, NAFTA countries account for just under 14 percent of the share of total global trade.) As a result, if the U.S. continues to implement new tariffs and withdraw from the global free trade system, “the rest of the world will adjust,” Robinson said. One possible result: The emergence of new trading alliances and value chains that don’t include products made in the United States.
Stateline Midwest: August 20182.62 MB