U.S. tariffs on Canadian and Mexican goods began at midnight Tuesday, kicking off a North American trade war.
As U.S. President Donald Trump‘s 25 per cent tariffs on all Canadian and Mexican products (alongside 10 per cent duties on energy products) set in, Canada could be pushed into a recession and lose hundreds of thousands of jobs, some economists warn.
In return, Prime Minister Justin Trudeau enacted retaliatory tariffs on American goods as the U.S. tariffs kicked in.
Here’s everything you need to know about tariffs, and how they could affect you.
What are tariffs?
Tariffs are essentially a tax that one country places on another country’s goods, charged as a percentage of what a buyer pays a foreign seller.
If an American company wants to buy Canadian wine and Trump’s tariffs set in, that American company would have to pay 25 per cent more for the same wine than they did previously.
Another example — Canada is the primary softwood lumber supplier to the U.S., shipping $8.4 billion worth of products in 2020. With Trump’s 25 per cent tariffs, American companies will end up paying an extra $2.1 billion for the same materials.
Tariffs are either introduced to “level the competitive playing field,” if there’s a perception that goods coming into the country aren’t being produced according to fair trading practices, or to help stimulate domestic production of those goods, explained Jim Kilpatrick, Deloitte Canada’s Global Supply Chain and Network Operations Leader.
In cases like the U.S. duties against Canada and Mexico, they can also be used to place political pressure on foreign governments — although the costs will ultimately be borne by both nations, Kilpatrick warned.
Who will pay for the tariffs?
Trump has insisted that tariffs are paid for by foreign countries. But it’s mainly American companies who will foot the bill, with the extra fees going to the U.S. treasury. These companies will often raise their prices to compensate, ultimately leading to greater costs for American consumers.
Given the sudden increase in costs, the American company would be incentivized to look for suppliers elsewhere. Meanwhile, U.S. consumers, faced with pricier Canadian products, are prodded to spend on domestic goods instead.
On the other hand, tariffs will hurt Canadian companies by making their products harder to sell abroad. Kilpatrick noted some could be forced to cut prices, and therefore profits, in order to offset the duties.
“Tariffs are not new. And in prior cases, (the cost of) tariffs are ultimately shared between importers, exporters and consumers,” he said.
Why is Trump placing tariffs on Canada?
Trump has declared a national emergency over the “extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl,” according to the White House. He claims that tariffs on Canada and Mexico will force the nations to act in addressing this “crisis.”
Less than one per cent of all fentanyl intercepted by American border officials comes from Canada. Following Trump’s tariff threats, Canada has implemented a $1.3 billion plan to secure its southern border, including installing a fentanyl czar, to eradicate what little fentanyl is passing from Canada to the States.
What are Canada’s retaliatory tariffs on the U.S.?
Trudeau announced 25 per cent retaliatory tariffs on American goods, targeting $30 billion worth of goods the day that U.S. tariffs begin and another $125 billion in American products three weeks later.
These include U.S. goods like beer, wine, bourbon, fruit, fruit juices, household appliances, furniture and materials like lumber and plastic. It means Canadian companies — and most likely Canadian consumers — will have to pay more for the same goods from the States.
Locally, Ontario Premier Doug Ford is urging consumers to buy goods sourced in the province, and is considering legislation to promote local products.
Ford said he’s prepared to pull American alcohol from LCBO shelves, amounting to nearly $1 billion worth of booze sold every year. He is also prepared to tear up a $100 million deal with senior Trump adviser Elon Musk’s Starlink, which would have provided internet in remote areas, should the tariffs come to be.
Will tariffs affect your grocery bill?
Your grocery bill is unlikely to be affected by Canadian tariffs on U.S. imports, according to Canadian food industry executives.
Ottawa was “as surgical as possible” when drawing up its initial list of retaliatory tariffs, said one food manufacturing lobbyist. Much of the food products on the list, like American eggs, poultry and cheese, are already manufactured domestically or available from overseas, making it easy to dodge expensive U.S. imports.
Meanwhile, as more Canadians embrace the growing “Buy Canadian” movement, local businesses are revelling in the increased traffic even while navigating supply challenges south of the border.
What U.S. tariffs could mean for Canada’s economy
In 2024, more than 75 per cent of Canada’s exports went to the U.S. If Canada enters a trade war with the U.S., economists warn the clash could easily push the country into a recession, shaving billions of dollars off of the economy and costing hundreds of thousands of Canadians their jobs.
“We’ve never had a trade shock outside of wartime like this since the Great Depression,” Jim Stanford, chief economist at the Centre for Future Work, previously told the Star. “So we are in uncharted territory.”
RBC economists Frances Donald and Nathan Janzen reported that tariffs of this size could “wipe out Canadian growth for up to three years, with the largest impacts in the first and second years.” It could also see Canada’s GDP shrink by up to 4.2 percentage points compared to what it would be otherwise — amounting to roughly $126 billion.
Other experts predicted the Canadian dollar could take a pounding, driving up inflation and making almost everything the nation imports more expensive.
Will I lose my job over the U.S. tariffs?
No Canadian industry is completely safe from layoffs during an economic slowdown. But the sectors most reliant on U.S. trade are expected to be hit first and hardest in the event of a trade war, experts say.
Jobs in the manufacturing sector, especially those involved in making automobiles, aerospace parts and primary metals, are most vulnerable to U.S. tariffs. But workers in agriculture or raw commodities such as oil are not in as much danger, as they could find alternative markets to export into.
Hospitality and retail workers are relatively safe. So are workers in professional services like banking. But these jobs could be at risk later on if the trade war escalates.
Why does Trump keep calling Canada the ‘51st State’?
Trump has repeatedly referred to Canada as the 51st American state and Trudeau as the “governor” of Canada since his election victory.
While his remarks were initially dismissed as a “joke” by senior Canadian government officials, Trump has since repeatedly stated that he is serious in his desire to see Canada incorporated into the U.S.
In candid comments to business and industry leaders that were caught by a hot mic, Trudeau said Trump’s annexationist rhetoric toward Canada are not a joke, and that they are driven in part by his desire for Canada’s critical mineral resources.
“They’re very aware of our resources, of what we have, and they very much want to be able to benefit from those,” Trudeau said after media were ushered out the room. “But Mr. Trump has it in mind that one of the easiest ways of doing that is absorbing our country, and it is a real thing.”
Could Canada diversify its trading partners?
Canada has been pushing to diversify its trading partners since Trump’s last tariff threat to the nation during his first term in office. The country now has free trade agreements with more than 50 countries, covering two-thirds of the global economy and about 1.5 billion consumers.
The agreements are already showing some results. Canadian exports to members of the Trans-Pacific Partnership went up 38 per cent to $66 billion in its first five years, according to the Asia Pacific Foundation of Canada.
Meanwhile, since signing the Canada-EU Comprehensive Economic and Trade Agreement (CETA) in 2016, a landmark free trade agreement with the EU (that has yet to be ratified), trade in merchandise between Canada and the EU grew by 65 per cent, and services by almost 73 per cent.
On the other hand, it’s difficult to escape the gravity of trade with the U.S. given our geographic proximity, shared language and culture, Kilpatrick said, especially after decades of interdependence. More is also needed to improve Canada’s export infrastructure — although the government is moving on this as well, with recent announcements like $80 million in funding to complete the Churchill, Man., export terminal on Hudson Bay.
Could Canada join the EU?
There’s no Canadian law that would bar the nation from joining the European Union — but the EU would need to amend its requirement for member states to be based in Europe, experts say.
Even if this were to happen, it would take years if not decades for Canada to clear the application and negotiation process to integrate into the EU.
It is far more likely for Canada to shore up its already substantial trade ties with the EU and European nations, including finally seeking ratification of CETA, which could assure businesses on both sides of the Atlantic, experts say.
With files from The Canadian Press, Associated Press, Jake Edmiston, Josh Rubin and Ana Pereira
