Products subject to U.S. and China tariffs A full-blown trade relative to total trade “ conflict would have $US billions negative impacts on Canada. 6000 ” 5000 4000 3000 2000 1000 0 $US 360 billion U.S. trade China trade (US $250b tari + (exports + (exports + $110b China imports) imports) retaliation) Source: World Bank (doingbusiness.org), RBC Economics Research But we doubt the impact on Canada would be that benign. Taking full advan- tage of trade opportunities emerging from a U.S.-China trade war would probably require expensive investments to reorient supply chains which currently keep demand for Canadian products inextricably tied to demand for U.S. products. Efforts are underway to change that, but in the short run those expenditures could be hard to justify given the potentially temporary nature of the U.S.-China trade disruption. On the other hand, a full-blown U.S.-China trade conflict would have imme- diate and negative impacts on Canada, through stock market volatility that could affect business and consumer confidence, as well as the potential for higher prices from tariffs making their way into broader supply chains and onto the backs of households. The best Canada and the world can hope for is that the current trade truce not only holds, but leads to existing tariffs being scaled back. RBC Economics Research | Navigating 2019 - 9 big insights for the year ahead | January 2019 23