Donald Trump’s threat of a 25 per cent tariff on imported goods would have a devastating impact on Canada’s economy. But some Canadian workers, industry leaders and economists aren’t convinced they’ll actually be implemented.
In a social media post Trump made Monday evening, the proposed tariffs were framed as a warning to the U.S.’s primary trading partners that “they will pay a very big price,” unless both Canada and Mexico take aggressive action to tighten border security.
But analysts and those working in impacted industries say the mutually beneficial nature of the Canada-U.S. trade relationship, worth more than a trillion dollars, shouldn’t be underestimated.
“It’s a cost on Canada and Mexican businesses, and American businesses,” because the countries have a deeply intertwined supply chain, said Charles St-Arnaud, chief economist at Alberta Central, a trade association for the province’s credit unions.
He sees the tariff proposal as “mostly posturing” from the Trump administration ahead of an impending free trade agreement renegotiation. Some experts and politicians have long speculated that an incoming Trump administration would use the threat of tariffs as leverage ahead of the 2026 renewal of the Canada-United States-Mexico-Agreement (CUSMA), a tactic Trump previously used during the original negotiations in 2018.
At this point, St. Arnaud says it’s more of a risk. “Nothing has been announced yet,” he said. “But if it was to happen, it would [be] a negative for our economy.”
The Canadian dollar was trading at 70.87 cents US early Tuesday, down from 71.53 cents US on Monday, following U.S. president-elect Donald Trump’s pledge to impose a 25 per cent tariff on all Canadian imports. CBC News senior business correspondent Peter Armstrong breaks down the potential effect of Trump’s proposal on the Canadian economy.
Oil, energy and autos
The U.S. imported $614.3 billion Cdn worth of goods from Canada in 2022, according to the Office of the United States Trade Representative. More recent figures from the U.S. Census Bureau show that the U.S. imported about $435 billion Cdn of Canadian goods between January and September of this year.
“It would be a really substantial hit to both American consumers and American manufacturers,” said Scott Lincicome, vice-president of general economics at the Cato Institute’s Steifel Trade Policy Center. While importers are responsible for paying tariffs, they typically pass the cost on to consumers, which means everyday Americans will have to absorb the higher prices from the proposed tariffs.
The list of goods Canada sends south is long: the country sent billions worth of natural gas, autos and car parts, machinery, plastics, gold, electricity, wood, aluminum, iron and steel, and agricultural products to its neighbour last year.
The U.S. is Canada’s best customer when it comes to oil and petroleum. Sixty per cent of U.S. crude oil imports were sourced from Canada in 2022, while Mexico was the U.S.’s next most valuable supplier, accounting for just 10 per cent of those imports by comparison.
A tariff regime that disrupts that kind of integration would “inject a lot of uncertainty into the supply chain,” said Lincicome.
“The market remains probably the best check on Donald Trump’s protectionist impulses. And I think the [U.S.] market’s muted reaction to what happened last night is a good sign that not a lot of folks actually believe this is going to happen.”
‘There’s no point in being in business’
One example of the interrelation described by St-Arnaud is Ontario’s auto sector, where car parts might cross the border multiple times.
The auto industry would be the second most impacted sector after oil and energy. Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, put it this way: a 10 per cent universal tariff would make it hard for both the Canadian and U.S. car industries to make money. But a 25 per cent tariff?
“Twenty-five isn’t even a discussion. There’s no point in being in business,” he told CBC News, adding that half the cars made in Canada are U.S. brands, while half of the components and more than half of the raw materials used to build cars come from the U.S.
We make tools and we make parts together and we make cars together. I expect a tough, real negotiation, but I’m also telling everybody to be patient.”
Volpe says he’s not convinced that Trump’s 25 per cent tariff will come to fruition.
“Relax a little bit. He loves doing this.”
Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, says supply chains in the North American auto industry are so integrated that ‘there is no border in automotive.’ He says U.S. president-elect Donald Trump ‘is trying to disrupt the conversation early.’
Others have maintained that the threats should be taken seriously. Catherine Cobden, president of the Canadian Steel Producers Association, said in a statement that Trump’s announcement was “a signal for urgent action.”
There is precedent for Trump making good on his tariff promises. In 2018, his administration slapped a 25 per cent tariff on Canadian steel and a 10 per cent tariff on aluminum, citing national security threats. Canada retaliated with its own tariffs, and the year-long tariff war that ensued put the ratification of the newly-created CUSMA on hold.
Cobden wrote that 40 per cent of steel imports in Canada come from the United States, while 20 per cent of their imports come from Canada.
“Imposing tariffs on Canadian steel will have tremendous impact across many sectors such as auto, energy and construction, making everything more expensive to the American and Canadian consumer,” her statement said.
Wheat farmer ‘feeling optimistic’
Landon Friesen, a wheat farmer from Crystal City, Man., was hauling wheat across the border to Langdon, N.D., on Tuesday when he spoke with CBC News. Up to 70 per cent of his crop ends up in the U.S., he said from his parked semi-truck.
“It’s gonna affect me probably more than guys who sell their grain just into Canada,” said Friesen, adding that the U.S. and Canada rely on each other for agricultural trade “more than we think.”
Last year, Canada exported about $56.9 billion Cdn in agricultural goods to the U.S., including billions worth of baked goods, canola oil, beef and pork, chocolate and frozen french fries.
The U.S. grain buyers Friesen works with are equally concerned about how much traffic they’ll have to turn away at the border if the tariff goes into effect. But at the end of the day, he says the proposed tariffs will hurt U.S. consumers more than anyone.
“General Mills imports most of their oats from Canada down into the States. I mean, are consumers ready to see a 25 per cent increase in price on the shelves? That’s a big, big thing to consider,” said Friesen.
“I’m feeling optimistic. I think they’ll figure things out,” he said. “If we can respond with some strong leadership, I think it’ll be OK — as long as we don’t run around with our heads cut off about this and freak out.”
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