The trade dispute between Canada and the United States has intensified, with both nations imposing significant tariffs on each other's goods. The U.S. has enacted a 25 percent across-the-board tariff on Canadian and Mexican imports, sparing Canadian energy with a lower 10 percent levy. In retaliation, Canada has implemented a 25 percent tariff on Chinese steel and aluminum, and a 100 percent tariff on electric vehicles from China, effectively halting Tesla's sales from the country in Canada.
The imposition of these tariffs could trigger a harmful cycle of increased costs, reduced demand, and economic slowdown, potentially leading to higher unemployment rates. Canadian exporters are exploring alternative markets, yet replacing the vast U.S. economy as an export destination remains a formidable challenge.
S&P Global projects that sectors such as paper products and printing could experience a decline in output ranging from 9 to 15 percent, while the metals industry might see a reduction of 3 to 6 percent. Quebec Premier François Legault has highlighted the significant impact these tariffs could have on employment, estimating that up to 160,000 jobs in Quebec could be lost if the 25 percent tariffs persist.
Canada has taken further retaliatory measures by introducing 25 percent tariffs on $30 billion worth of American goods, with plans to expand these tariffs to encompass an additional $125 billion in U.S. products within 21 days. The metal tariffs alone are anticipated to generate about a billion dollars in revenue for Canada over five years. However, the increased tariffs will likely render Canadian goods less competitive in the U.S. market, reducing their export volume.
The Bank of Canada has outlined potential scenarios in response to these developments, including a situation where the U.S. imposes 25 percent tariffs on all imported goods, prompting reciprocal actions from its trading partners. Under this mutual tariff scenario, Canada's export volumes are expected to decline sharply due to diminished demand from the U.S., coupled with a global GDP slowdown leading to lower commodity prices and further decreasing demand for Canadian exports.
Lisa McEwan, co-owner of Toronto-based Hemisphere Freight & Brokerage Services, emphasized the financial implications of such tariffs.
"A lot of people don’t realize that, but there’s a huge tax implication," – Lisa McEwan
Industries that predominantly export raw commodities like oil and gas and mining may face lesser impacts since U.S. producers add value by processing these resources. Nonetheless, Canada's retaliatory tariffs are poised to elevate the cost of goods imported from the U.S., likely resulting in Canadian firms seeking alternatives beyond American imports.
