Commercial trucks in Detroit drive towards the Ambassador Bridge to Windsor, Ont., on Feb. 1.Rebecca Cook/Reuters
Starting immediately, all your near-to medium-term financial decisions need a Donald Trump overlay.
Sorry to put that image in your head, but rising risk in the economy calls for de-risking at home.
The U.S.-Canada tariff war threatens to rob us of economic prosperity and make us poorer. If it lasts more than a week or two, jobs could be lost and hours cut. Investments and retirement savings could take a temporary hit, homes could fall in value and some food and other consumer goods may get more expensive. Prepare for weird shortages, and probably some price spikes.
As mentioned in my personal finance briefing on Mr. Trump’s inauguration day, having money parked safely for emergencies is paramount right now. But there’s more we need to do.
We have to put ourselves on an economic war footing that accepts sacrifice in the weeks and months to come. Politicians and business and labour leaders must earn our faith in them for the hard bargaining ahead. Our contribution is to be realistic about potential costs at the household level, and plan accordingly.
The winners of the last economic disaster are badly needed to help us weather the latest catastrophe. These would be the people who, during the upheaval of the pandemic, were able to pile up billions of dollars in savings.
A lot of that money is still sitting in bank savings accounts, savings products for investors and guaranteed investment certificates at interest rates that are well down from pandemic peaks. Maybe it’s a stretch, but it’s almost as if this money is being hoarded right now. A patriotic alternative is to start pouring it into the economy.
If you have the bucks, support local and national businesses. Buy some meals from restaurants, drink Canadian wine, beer and booze, reno your family room or travel domestically this summer.
Maybe you feel you’ve been nagged to buy Canadian in the past. Now, it’s an economic necessity. Check the Tuesday edition of the Carrick on Money newsletter for resources to find Canadian products.
Some households are still suffering from the economic after-effects of the pandemic, notably the run-up in food costs in recent years and increases in costs for mortgages and other borrowing. They need to think of ways of building financial self-sufficiency. Owe less, save more, take fewer chances. Live on a pay-as-you-go basis, while keeping a cash reserve where possible.
Enduring the economic blowback of tariffs is something we’ll all have to contend with. The federal government is planning a multibillion-dollar financial assistance package for workers and businesses affected by tariffs, similar to what was offered in the pandemic. Unfortunately, the cost of this assistance will put further strain on federal finances and potentially require hard spending decisions ahead.
U.S. tariffs will likely push the Canadian dollar lower, which increases the cost of goods imported from the United States. Meantime, retaliatory tariffs against U.S. exports to Canada will inflate prices for some goods at the retail level. Whether you keep buying items affected by tariffs or find made-in-Canada or other alternatives, you may end up spending more.
We still hear recriminations about whose fault the last surge of inflation was and how it could have been prevented. Too much blame was attached to domestic policies and not enough to international trends, but that’s in the past.
If your cost of living ticks higher in the weeks ahead as a result of a tariff war, blame the U.S. government. Countries as friendly as Canada and the United States can negotiate any irritant way. They don’t use mafia rules to get what they want.
It’s exhausting to take all of this in. A lengthy trade war with the United States would produce the third megadisruption in the economy in the past 17 years. The previous two were the 2008-09 global financial crisis and then the pandemic, which is still felt in the economy through high interest rates and strains on government finances.
A quick end to the tariff war would be a huge relief, but let’s be realistic about a return to normal. From the pandemic to Trump, the 2020s are starting to look like an age of disruption.
Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.
