Montreal, Canada – Donald Trump is lower than a month away from being sworn in as the following president of the US, and the Republican chief is set to usher in a variety of severe home and international coverage shifts.
Prematurely of Trump’s inauguration on January 20, international locations all over the world have been getting ready for an additional “America First” administration that might drastically alter their relationships with Washington.
For Canada, a prime US international ally, the countdown to Trump’s second time period has additionally been a countdown to a looming threat that might upend the Canadian economic system and years of sturdy commerce ties between the neighbouring nations.
Late final month, Trump mentioned he deliberate to impose 25-percent tariffs towards Canada – in addition to Mexico – if the nation didn’t do extra to stem irregular migration and the move of unlawful medicine over its border with the US.
The plan, which has drawn widespread concern from Canadian politicians, will come into impact “on January twentieth, as one in all my many first Government Orders”, Trump mentioned on his Reality Social web site.
Whereas Canadian Prime Minister Justin Trudeau has harassed the necessity for dialogue and cooperation, Trump’s warning has thrown Canadian politics into disarray.
Final week, Canadian Finance Minister and Deputy Prime Minister Chrystia Freeland resigned over a disagreement with Trudeau over deal with Trump. She mentioned Canada wanted to take the specter of tariffs “extraordinarily significantly” and warned of “a coming commerce battle” with the US.
However is a “commerce battle” really looming? What would imposing 25-percent US tariffs on Canadian items and companies imply for each Canada and the US? And can Trump actually comply with via on his risk?
Right here’s what it is advisable know.
First off, what did Trump say precisely?
In a post on Reality Social on November 25, Trump mentioned he deliberate to “cost Mexico and Canada a 25% Tariff on ALL merchandise coming into the US”.
“This Tariff will stay in impact till such time as Medication, particularly Fentanyl, and all Unlawful Aliens cease this Invasion of our Nation!” the Republican president-elect wrote.
“Each Mexico and Canada have absolutely the proper and energy to simply clear up this lengthy simmering downside. We hereby demand that they use this energy, and till such time that they do, it’s time for them to pay a really huge worth!”
How did Trudeau reply?
The Canadian prime minister spoke to Trump the identical night that he threatened the tariffs.
“We talked about among the challenges that we will work on collectively. It was a very good name,” Trudeau told reporters the following morning.
“It is a relationship that we all know takes a certain quantity of engaged on, and that’s what we’ll do,” he mentioned, including that he harassed to Trump the significance of sustaining sturdy ties between Canada and the US.
In late November, Trudeau made a shock go to to Mar-a-Lago, Florida, for talks with the US president-elect about the way in which ahead. The Canadian authorities additionally unveiled a collection of measures final week that it mentioned would bolster safety on the US-Canada border.
However whereas the prime minister has urged Canadian opposition leaders and provincial premiers to affix a united “Group Canada” method to the incoming US administration, he remains under pressure to do no matter it takes to keep away from the tariffs.
How vital is the US-Canada commerce relationship?
Final yr, the US and Canada exchanged $2.7bn ($3.6bn Canadian) in items and companies day by day throughout their shared border, in line with Canadian authorities figures.
“Many of those items contain co-investing and co-development making our networks extremely built-in,” the government said.
In accordance with US Census Bureau information for 2024, via October, the US exported greater than $293bn value of products to Canada whereas imports from its neighbour totalled almost $344bn.
That made Canada the US’s second-largest buying and selling associate behind Mexico, accounting for 14.4 p.c of whole commerce.
The 2 international locations are also signatories to the US-Mexico-Canada commerce settlement (USMCA), a trilateral deal completed throughout Trump’s first time period in workplace that up to date the longstanding North American Free Commerce Settlement (NAFTA).
What items are being traded?
Canada exports a variety of merchandise to the US, together with most notably petroleum.
The nation is the US’s largest international power provider: Sixty p.c of American crude oil imports got here from Canada in 2023, up from 33 p.c a decade earlier, in line with the US Vitality Data Administration analysis group.
Canada despatched about 97 p.c of its crude oil exports south of the border final yr. The overwhelming majority of these provides got here from the oil-rich province of Alberta.
It additionally exports motor autos and elements; forestry merchandise; chemical compounds and plastics, and minerals to the US, in addition to provides of electrical energy.
On the flip aspect, the products that Canada imports from the US are just like what it exports.
The nation imports motor autos and elements, in addition to power merchandise, from its southern neighbour. Canada additionally imports equipment; transportation tools, and chemical compounds and plastics, amongst different issues.
“Absolutely built-in US-Canada provide chains exist in dozens of sectors and a whole bunch of industries,” explains Roy Norton, a worldwide fellow on the Wilson Heart assume tank in Washington, DC.
“Parts made in a single or the opposite nation routinely comprise a part of the ultimate product coming off the meeting line within the different nation. The impact of this integration has been to maintain costs down in each international locations, enhancing the worldwide competitiveness of US and Canadian corporations.”
All proper, so what results would a 25-percent US tariff have on Canada?
Economists and different specialists have been clear that 25-percent tariffs would hit Canada laborious.
“Let’s not child ourselves,” Trudeau mentioned earlier this month. “Twenty-five-percent tariffs on every part going to the US can be devastating to the Canadian economic system.”
Michael Davenport, an economist at Oxford Economics, mentioned (PDF) in a late November report that blanket 25-percent US tariffs, mixed with proportional retaliatory measures by the Canadian authorities, would push Canada right into a recession in 2025.
Canadian exports would drop and the nation’s gross home product would fall 2.5 p.c by early 2026, Davenport mentioned. Inflation would attain 7.2 p.c by the center of subsequent yr and 150,000 layoffs would push the unemployment fee to 7.9 p.c by the top of 2025.
“Canada’s power, auto, and different heavy manufacturing sectors can be hardest hit by the blanket US tariffs due to the excessive diploma of cross-border commerce in these industries,” the report mentioned.
“These sectors rely closely on exports to the US, but additionally supply a sizeable share of their inputs from the US, making them extremely uncovered to tariffs.”
What in regards to the affect on the US?
Given how built-in the US and Canadian economies are, the US can be damage by blanket tariffs, as nicely.
The Oxford Economics report mentioned the 25-percent US tariffs and comparable retaliation from Canada would push the US into what’s often called a “shallow recession”, or when some elements of the economic system are doing nicely whereas others are struggling.
Disruptions to the North American provide chain would damage American producers and native economies.
An October report for the Canadian Chamber of Commerce’s Enterprise Information Lab famous that Canada is the first export marketplace for 34 US states — making them “surprisingly depending on Canadian commerce”.
Trevor Tombe, an economics professor on the College of Calgary and the report’s writer, famous for instance that Montana’s commerce with Canada accounts for 16 p.c of the state’s economic system whereas Michigan’s is 14 p.c. “At the same time as distant as Texas, commerce with Canada nonetheless accounts for 4 p.c of the state economic system,” Tombe mentioned (PDF).
Karl Schamotta, chief market strategist at Corpay, a US-based enterprise funds and administration firm, mentioned in a market transient from late November that, given what’s traded between the US and Canada, Trump’s plan “appears to be like like an personal purpose”.
“US imports from Canada are closely concentrated in merchandise that make up a giant share of middle-class consumption baskets – oil, pure fuel, motor autos, meals, and constructing provides – that means that tax will increase might be extremely seen,” Schamotta wrote.
“On the flip aspect, exports to Canada are sometimes of the upper value-added type … – suggesting {that a} huge vary of companies in battleground states might be negatively impacted. If the US raises tariffs by the quantity threatened – and if Canada responds in type – the home political blowback might derail a variety of vital coverage initiatives.”
Will Trump comply with via on his risk?
That continues to be to be seen, however many specialists have mentioned they consider Trump is posturing and doesn’t intend to impose blanket 25-percent tariffs on Canada.
As an alternative, some say the US president-elect is hoping to extract concessions from his nation’s northern neighbour, notably on longstanding commerce and immigration points.
“Notably, the overwhelming consensus amongst economists is steep tariffs, particularly on Canada and Mexico, would result in antagonistic near-term provide chain disruptions and inflict ache on US companies and households,” Marc Ercolao, an economist at TD Economics, mentioned in a report in late October, simply earlier than the US election.
“We suspect that the previous President wouldn’t tolerate a recession or main market shock on his watch, however the internet impact of his insurance policies might result in simply that.”
Ercolao added that the “probably state of affairs” underneath a second Trump administration can be for Washington to hunt concessions underneath the pending evaluate of the USMCA free-trade settlement, set for 2026.
Davenport, the Oxford Economics economist, echoed that in his report, saying that blanket tariffs would hurt the US economic system and the US-Canada commerce relationship, and “instantly fly within the face of the USCMA”.
As an alternative, he mentioned that “it’s extra probably that Trump will impose focused tariffs on particular areas which were central factors of rivalry in Canada-US commerce relations previously”.
“These embrace metal, aluminium, different base metals, lumber, and agricultural products like dairy.”
If the US tariffs are imposed, will Canada enact retaliatory measures?
That continues to be unclear.
To date, Trudeau has not introduced any concrete plans to impose any retaliatory tariffs or different measures on the US. However the Canadian prime minister has mentioned his authorities will “reply to unfair tariffs in a variety of methods”.
“We’re nonetheless wanting on the proper methods to reply,” he mentioned on December 9.
Citing unnamed officers acquainted with the discussions, Bloomberg reported earlier this month that Trudeau’s authorities is analyzing the potential for levying export taxes on main Canadian exports to the US.
The officers mentioned export levies can be a “final resort”, in line with the report, whereas “retaliatory tariffs towards US-made items, and export controls on sure Canadian merchandise, can be extra prone to come first”.
For his half, Conservative opposition leader Pierre Poilievre, whose get together is extensively anticipated to win federal elections slated for subsequent yr in Canada, has used Trump’s tariffs risk to assault Trudeau and demand his resignation.
However Poilievre has supplied few particulars of how he would reply to the US tariffs if he had been prime minister. “President Trump is a dealmaker,” he informed CTV Information on Friday. “He needs America to win, there’s no query. However I need to present him that Canada can win on the identical time. He’ll put America first; I’ll put Canada first.”
Pressed on what meaning by way of coverage, Poilievre added, “What are the negotiating instruments I’ve? I can say, ‘Look, Mr President, in the event you attempt to cripple our economic system, clearly, we must reply with counter-tariffs that will damage on the American aspect.’”
