The True Cost of Walking Away

In my last couple of videos, I’ve talked quite a bit about Canada’s decision to walk away from a trade agreement with the United States.

I’ve made my opinion on that decision pretty clear.

Today, though, I want to put the politics aside.

I don’t want to talk about Donald Trump.

I don’t want to talk about Mark Carney.

I don’t want to argue about who was right at the negotiating table.

I want to talk about you and me.

More specifically, I want to talk about our wallets.

Walking away from a trade agreement has consequences.

Standing your ground may be something you believe is necessary, and I certainly have my own opinion about that, but there is still a bill attached to it.

Somebody eventually pays that bill.

Quite often, that somebody is us.

Canada has now announced that beginning September 8, it will place new tariffs of 15, 25 and 50 percent on about $27.6 billion worth of American products coming into Canada.

The United States has already imposed its own new tariffs on billions of dollars worth of Canadian products heading south.

So let’s forget about governments for a few minutes and follow one ordinary product through the system.

Suppose a Canadian store imports an American product that costs $100.

If that product is hit with a 25 percent tariff, somebody has to come up with another $25 when it enters Canada.

The American company might absorb some of it. The Canadian importer might absorb some. The retailer might accept a smaller profit.

Eventually, though, businesses run out of places to hide those costs.

The price goes up.

That $100 item doesn’t automatically become $125 at the cash register because tariffs don’t work quite that neatly.

There are wholesalers, currency changes, transportation costs, contracts and profit margins involved.

We do have some Canadian evidence showing us what can happen.

Researchers at the Bank of Canada studied more than 110,000 products sold by seven major Canadian retailers during Canada’s earlier round of counter-tariffs in 2025.

They found that products affected by a 25 percent tariff eventually became about 6 percent more expensive than comparable products that weren’t tariffed.

In other words, roughly one quarter of the tariff showed up in the retail price.

That is really important.

A tariff doesn’t necessarily mean the entire tariff appears on the price tag.

It does mean that some of it probably will.

Now consider what Canada announced today.

Clothing is on the list.

Some American clothing products will face a 50 percent tariff.

We’re talking about things such as cotton T-shirts, sweaters, women’s dresses and trousers.

Imagine a shirt that normally sells for $40.

Nobody can tell us today exactly what that shirt will cost six months from now. Based on Canada’s previous experience, though, it is entirely reasonable to expect some of that tariff to work its way onto the price tag.

Maybe the retailer switches suppliers.

Maybe they import a similar shirt from another country.

Maybe the American manufacturer lowers its price to keep the Canadian business.

Those things will happen.

They also take time.

Meanwhile, somebody buying clothes for their kids doesn’t really care about international trade theory.

They care that the $40 shirt might now cost $45.

Then there is food.

Canada’s new tariff list includes American cheese at 25 percent.

Some seafood is being hit with 25 percent. American honey is on the list at 50 percent.

Those aren’t abstract commodities.

That’s somebody making sandwiches for their kids.

That’s somebody ordering a pizza.

That’s somebody buying a piece of salmon for dinner.

There’s another part of this that isn’t immediately obvious.

A restaurant buying ingredients doesn’t simply absorb higher costs forever.

If cheese becomes more expensive, the pizza restaurant pays more.

Eventually the pizza becomes more expensive.

The same thing happens at a bakery, a neighbourhood café or a small catering company.

Suddenly a tariff on an ingredient has turned into a higher price for a service.

This is how these costs spread through an economy.

Furniture is another interesting one.

Some furniture coming from the United States will face a 50 percent tariff.

Think about the ordinary purchases people make when they’re setting up an apartment or replacing something that finally wore out.

A kitchen table.

A chair.

A dresser.

A desk for the spare bedroom.

These aren’t luxury purchases for most people.

If a $500 piece of furniture rises by only 6 percent, that’s another $30.

If retailers pass along more of the tariff, the increase could be considerably larger.

Then we’ve got appliances.

Some American appliances will face a 25 percent tariff.

Your refrigerator doesn’t care that Canada and the United States couldn’t reach a trade agreement.

It just dies.

Usually at the worst possible moment.

You walk into an appliance store expecting to spend $1,200 and discover that prices have moved higher.

Maybe it’s $50 more.

Maybe it’s $100.

Maybe the retailer has found another supplier and there isn’t much difference at all.

That’s going to vary enormously depending upon the product.

What I don’t think we should do is pretend that there will be no cost.

Electronics and tools are also included in Canada’s new tariffs, with some of those products facing a 15 percent duty.

Now we’re getting into the things used by small businesses.

A contractor needs a tool.

A small office needs equipment.

A family needs to replace something around the house.

Each individual increase may not seem particularly frightening.

Ten dollars here.

Twenty dollars somewhere else.

An extra fifty dollars when something breaks.

The problem is that households don’t buy only one thing.

We buy hundreds of things over the course of a year.

That’s where tariffs can become almost invisible.

There probably won’t be a line on your grocery receipt saying, “Trade dispute: $7.42.”

You’ll simply notice that your money doesn’t seem to go quite as far as it did before.

There’s another example happening right now in the United States.

It’s back-to-school season.

The Washington Post reported last week that the cost of American school supplies has risen nearly 8 percent from last year, citing research that points partly to tariffs on imported goods.

American manufacturers of familiar school products, including glue, notebooks and computer accessories, have publicly discussed raising prices because of tariffs.

One American mother interviewed for the story had budgeted $200 for her children’s supplies and reached her limit before she had finished buying everything on the list.

That is what a trade war looks like from the kitchen table.

It doesn’t look like a press conference.

It looks like a parent standing in a store with a calculator.

Interestingly, Statistics Canada reported just a few days ago that Canadian prices for basic school textbooks and supplies are already about 24 percent higher than they were twelve years ago.

Now we’re adding another layer of uncertainty to that.

There is also a consequence that doesn’t involve tariffs directly.

Canadian businesses that sell products into the United States may lose customers because their products have suddenly become more expensive south of the border.

Suppose you’re a small Canadian company employing twenty people and a large portion of your sales go to American customers.

Your American customer suddenly decides your product costs too much.

They buy somewhere else.

The Canadian company sells less.

Maybe overtime disappears.

Maybe expansion plans get cancelled.

Maybe eventually somebody loses a job.

That affects a family that has never imported anything from the United States in their lives.

This is why trade disputes spread so quickly beyond the products governments originally target.

The Americans aren’t escaping this either.

American consumers will pay higher prices for some Canadian products entering their country, just as Canadians will pay more for some American products entering ours.

American companies using Canadian products may have higher costs.

Those companies will make exactly the same calculations Canadian companies will make.

How much can we absorb?

How much can we pass along?

Can we find another supplier?

Can we manufacture it somewhere else?

There’s an important point here for Canadians, though.

Finding another supplier is exactly what we’re going to have to become very good at doing.

If an American product becomes too expensive, perhaps the answer is a Canadian product.

Maybe it’s something from Europe.

Maybe it’s something from Asia.

Maybe Canadian businesses discover opportunities to manufacture things here that we have spent decades simply buying from the United States.

That adjustment won’t happen overnight.

In the short term, it can actually make things more expensive because supply chains have to change.

Over the longer term, however, it could make Canada less vulnerable to whatever happens in Washington.

There’s one more number I think Canadians should know.

The Bank of Canada has already studied what happened when Canada imposed counter-tariffs previously.

Those tariffed products rose about 6 percent relative to comparable products.

When the tariffs were eventually removed, those price differences largely disappeared within about three months.

That tells us something very useful.

Tariffs really can raise prices.

It also tells us that those increases don’t necessarily have to become permanent.

So where does this leave the average Canadian?

Probably paying a little more.

Sometimes we may pay considerably more.

On other products we may notice almost nothing because retailers will change suppliers or manufacturers will absorb some of the cost.

I don’t think we’re heading toward some economic apocalypse where suddenly nobody can afford a T-shirt or a block of cheese.

I also don’t think we should fool ourselves into believing there is no price attached to what Canada has decided to do.

There is.

For me, the real question isn’t whether walking away from that agreement was free.

Clearly it wasn’t.

The question is whether Canadians believe the cost of accepting the agreement would ultimately have been greater.

That’s a much bigger question.

For now, though, the consequences are moving away from the negotiating table and toward something much closer to home.

The grocery aisle.

The clothing store.

The appliance shop.

The restaurant.

Your monthly household budget.

Over the next several months, we’re going to find out exactly what Canada’s decision costs.

Some of that cost will be measured in billions of dollars by economists.

The part most Canadians will notice will be measured very differently.

Five dollars here.

Twenty dollars there.

A grocery bill that’s a little higher than it used to be.

A purchase you decide to put off for another month.

That’s the true cost of a trade war.

Eventually, it arrives at the cash register.