The April 2 tariff war announced by U.S. President Donald Trump is upending global trade on a massive scale. The impacts for the United States will be bad, but mostly straightforward 鈥� higher prices on imported goods, retaliatory tariffs, and so on.
The impacts on Canada are less predictable. Some of them create downright weird incentives.
Consider coffee. The only U.S. state that grows coffee is Hawaii 鈥� most of the other coffee-producing countries in the world are now facing tariffs of at least 10 per cent to ship to the U.S.
But Canada should be fine, right? Nope!
A lot of coffee sold in Canada is roasted in the U.S., including (as far as I can tell) every cup sold at Starbucks on this side of the border.
This means fresh coffee beans will enter the U.S., where the buyers will pay a tariff. That cost will probably be passed along to Canadians when the roasted beans are shipped north.
So the obvious option is to import the beans straight to Canada, roast them here, and undercut the competition. There are Canadian coffee roasters, and Tim Hortons seems to have its own facility in Ontario.
There's an incentive to do that, but there's also an incentive not to.
While the tariffs are in place, any product that goes from Country A, through a processing or manufacturing step in the U.S., to Country C, can be made cheaper by simply cutting the U.S. out of the equation entirely.
But the disincentive is that no one knows how long the tariffs will last.
Does it make economic sense to build a facility, hire workers, and start roasting more coffee in Canada? Only if you can be certain that the tariffs will be in place for years, maybe decades. But everything about the tariff process has been marked by chaos and uncertainty!
In the absence of long-term investments, well, there's always making a quick buck by smuggling 鈥� and we might see some odd things moving across our southern border.
Consider vanilla.
About two thirds of the world's vanilla beans are grown in Madagascar (new U.S. tariff rate: 47 per cent) and Indonesia (32 per cent). U.S. vanilla extract, which goes in a whole lot of sweet foods, is about to get a lot more expensive.
So watch out for Americans heading north for day trips, and driving back with a Costco pack of vanilla extract they forget to mention at the border crossing.
How many other products are there that fall into this category? Anything that is relatively high-value, small enough to fit into the trunk of a car, and facing very high tariffs in the U.S. but little to no import barriers in Canada and Mexico is fair game. The U.S. border guards are going to be kept pretty busy.
What happens next?
I have absolutely no idea.
The one thing I know is that when something gets a big whopping tax on it, people will try to figure out a way to avoid paying that tax. Some of those will be legal ways, and others won't be.
