The Impact of Steel and Aluminum Tariffs on Consumer Prices

Higher Costs for Everyday Items

The imposition of tariffs on steel and aluminum by the U.S. government is set to take effect next month, and economists warn that this could lead to a rise in the prices of a wide range of consumer goods. President Donald Trump’s decision to impose a 25% tariff on steel and aluminum will directly affect businesses that rely on these materials, forcing them to pass the increased costs on to consumers. According to economist Moshe Lander, anything involving steel and aluminum in its production or distribution chain will be impacted. This includes trucks, trains, bridges, factories, and distribution networks. Lander emphasizes that the effects will be widespread, as steel and aluminum are integral components of many products and infrastructure.

The Royal Bank of Canada (RBC) has also issued a cautionary note, stating that while prices are expected to rise, the increases are unlikely to destabilize the economy significantly. However, the extent to which costs will rise and the specific items that will be affected remain key questions for consumers and businesses alike.

The Automotive Industry: A Significant Victim of Tariffs

One of the industries most directly impacted by the tariffs is the automotive sector. Steel and aluminum are critical components in vehicle manufacturing, and the cross-border production process further complicates the issue. For instance, a sheet of steel produced in Hamilton, Ontario, may cross the Canada-U.S. border multiple times before it is finally used in a finished vehicle. This complex supply chain means that the tariffs could lead to multiple layers of cost increases.

Economist Peter Warrian highlights that the repeated movement of steel and aluminum across borders could result in higher production costs for vehicles. If retaliatory tariffs are imposed, as seen in 2018, the financial burden on automakers could escalate. Erik Johnson, a senior economist at BMO Capital Markets, predicts that the average price of a new vehicle could increase by $400 to $700 under the new trade restrictions. However, if domestic U.S. producers respond by raising their prices, the cost of a new vehicle could climb even higher, potentially reaching $1,000.

Beyond the vehicles themselves, the Insurance Bureau of Canada notes that the increased costs of cars and trucks will also impact auto insurance premiums, as claims costs rise. This ripple effect underscores how the tariffs could have far-reaching consequences for consumers.

Appliances and Manufacturing: More Expensive Essentials

The impact of the tariffs is not limited to vehicles. Everyday household items, such as refrigerators and coffee makers, could also become more expensive. Many of these appliances are manufactured in the United States and then imported into Canada, making them vulnerable to price increases due to the tariffs. Warrian explains that steel produced in Canada may cross the border multiple times before it is used in a final product, leading to higher costs at each stage of production.

The manufacturing and construction sectors are also expected to feel the pinch. Steel is a key component in building materials, and new homes often rely on steel for both appliances and structural elements. While the Canadian Home Builders’ Association suggests that the immediate impact on home-building prices may be limited due to the absence of retaliatory tariffs from Canada, this could change if Canada decides to impose its own tariffs. If the U.S. tariffs remain in place for an extended period, they could have severe impacts on local economies, leading to slower housing starts and reduced consumer confidence.

Packaging and Everyday Items: Hidden Costs

Even items that may not immediately come to mind when thinking about steel and aluminum tariffs could be affected. For example, the aluminum used in soda and beer cans means that the cost of a can of Coca-Cola or a beer could rise. Lander humorously notes that if an item makes a metal sound when knocked, it likely contains steel or aluminum and could become more expensive. This includes unexpected items like Hibachi sets or barbecue equipment.

In some cases, even products that do not directly contain steel or aluminum could see price increases due to the broader impact of the tariffs on transportation and distribution networks. For instance, Lander points out that something as simple as a Tim Hortons doughnut might have a few cents worth of aluminum and steel embedded in its production and distribution process. While the direct impact on the doughnut itself may be minimal, the cumulative effect of the tariffs on supply chains could lead to higher prices for a wide range of goods.

Timing Purchases: Should You Buy Now or Wait?

The tariffs are set to take effect on March 12, but Canadians may want to consider their purchasing decisions in light of the expected price increases. Lander suggests that for big-ticket items like refrigerators or other appliances, it may be worth buying now to avoid future price hikes. However, for smaller or less urgent purchases, such as a new watch, it may be better to wait and see how the situation unfolds.

Flavio Volpe, president of the Automotive Parts Manufacturers Association, advises consumers planning to buy a vehicle to make their purchase sooner rather than later. Volpe warns that as trade tensions escalate, the price of cars will likely increase due to tariffs and retaliatory measures. He notes that if the trade war is short-lived, the value of vehicles may collapse once the tariffs are removed, making it a risky time to buy. This advice underscores the uncertainty and potential long-term consequences of the tariffs for consumers.

The Broader Economic Implications

The tariffs on steel and aluminum are part of a broader trade strategy by the U.S. government, but their implementation could have unintended consequences for both the U.S. and Canada. While the immediate impact may not be catastrophic, the ripple effects on industries like automotive manufacturing, construction, and retail could lead to slower economic growth and reduced consumer confidence.

Canadians are already bracing for the potential fallout, with many wondering how the tariffs will affect their daily lives. From the cars they drive to the appliances they use and even the packaging of everyday products, the reach of these tariffs is vast. As the situation continues to unfold, one thing is clear: consumers will bear the brunt of the increased costs, and the longer the tariffs remain in place, the more severe the impact will be.

In conclusion, the steel and aluminum tariffs represent a significant shift in trade policy with far-reaching consequences for consumers and businesses. While the full extent of the impact is still uncertain, it is clear that the costs of many everyday items will rise, and the way people buy and budget may need to adjust accordingly. As the situation evolves, staying informed and making smart purchasing decisions will be key for navigating this challenging economic landscape.