U.S. President Donald J. Trump’s proposed tariffs threaten Canada’s economic stability and it has provoked promises of dollar-for-dollar retaliatory action from Ottawa. The result could mean slowdowns for both economies.
Trump intends to impose a 25 per cent tariff on all products from Mexico and Canada into the U.S. as soon as February.
In his post on the Truth platform, he says he is doing so to prevent all “illegal aliens” and drugs, especially Fentanyl, from entering the U.S. By invoking a perceived national threat, he can circumvent the existing North American trade deal that prevents tariffs.
In his inauguration address, Trump said automobiles would be built in America, and it would export energy as the nation with the largest amount of oil and gas of any country.
“I will immediately begin the overhaul of our trade system to protect American workers and families. Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens,” he said.
Trump said he would establish the External Revenue Service to collect all tariffs, duties, and revenues.
“It will be massive amounts of money pouring into our treasury, coming from foreign sources,” he said.
Dimitry Anastakis, a professor in Canadian Business History at the University of Toronto, says a tariff is when a government imposes additional costs on any goods coming into a country to encourage local production to keep competition out.
Anastakis said Trump says many things he does not follow through on, but tariffs would be devastating for Canada’s economy. He said tariffs imposed on both sides of the border would raise the cost of living, and the effects would be detrimental to consumers and producers.
A study released last November by the Canadian Chamber of Commerce said tariffs would hurt both countries. Its report showed Canada’s Gross Domestic Product would shrink by 2.6 per cent, or about $78 billion, or about $1,900 per person annually.
The U.S. GDP would contract by 1.6 per cent, or roughly US$467 billion, or about $1,300 per person annually, the study showed.
“A 25 per cent tariff applied across the board on all U.S. imports could push Canada’s economy into recession by the middle of 2025,” said Stephen Tapp, the CCC’s chief economist. “But these results also underscore Canada’s economic importance to the U.S., something that’s often underappreciated south of the border.
“Make no mistake, if Trump imposed these tariffs, it would represent a significant negative shock to the U.S. economy,” he said.
Anastakis said Trump is still bound by U.S. trade laws, in that many of the things said are not grounded in reality.
“We don’t know if all this is actually gonna play out because he has to follow certain rules. He is constrained by the fact that Congress is actually where tariffs are imposed in a U.S. administration,” he said.
Anastakis said Trump has a couple of pieces of legislation that allow this on a national emergency basis, and the administration will have to study some of the trade practices to impose it.
“Our economies have been integrated where the border doesn’t matter as much because there has been a number of trade agreements over time that got rid of duties and tariffs, which is something that used to happen a lot but not anymore,” he said. 
During Trump’s last term in office, the North American Free Trade Agreement was updated to the United States-Mexico-Canada Agreement.
He said imposing tariffs might be good for the U.S. currently but not necessarily in the long run as they will need time to construct numerous manufacturing plants to replace those being cut off by tariffs.
Timothy Berry, an economics professor at Humber Polytechnic, said this is a big deal because if this develops into a full trade war, it could get pretty ugly politically and economically.
“The U.S. is far more important to our economy than Canada is to the U.S.,” Berry said.
He said almost 78 per cent of Canadian exports go to the U.S. while 62 per cent of imports come from the U.S.
Berry said Canada represents 16 per cent of U.S. exports and imports 12 per cent of its total imports from Canada.
“We are an export-based country, and our exports primarily tend to be in energy like oil, gas, and some manufacturing in the auto sector are very important to us,” he said. Berry said this would create significant complications because the supply chain between the U.S. and Canada in the auto industry is vast, deep and complex.
“Our GDP, that’s measuring our economic output, over a third of that is based on exports,” he said.
Berry said Trump sees these tariffs as a huge revenue generator for the U.S. and is aiming at bringing jobs back to the U.S. although there might be only some credibility to this.
“Which I guess is understandable, there have been a lot of jobs exported to Mexico, China and the U.S. heartland has been gutted,” he said.
Berry said this is why there is a huge chunk of the population in the U.S. that feels left out and he’s appealing to those people and that is how he got in with a slight majority.
“Some of the strategy is to create these high tariffs that will force companies to relocate to the U.S. to be able to produce and not get hit with tariffs,” he said.
Berry said we can now see the political divisions in Canada developing as Alberta Premier Danielle Smith, whose whole economy is primarily based on oil, tries to make nice with Trump to negotiate a deal so Alberta energy does not get hit with a big tariff.
He said Prime Minister Justin Trudeau resigned at the worst time, and the premiers have gotten together trying to form “Team Canada” with Ontario Premier Doug Ford right out front, who believes in battling tariffs head-on.
Ford said in a statement he is ready to protect Ontario workers, businesses and families.
“As premier of Ontario, if President Trump’s tariffs make retaliation necessary, I will stand shoulder to shoulder with the rest of Team Canada to fight back using every tool in our toolkit,” Ford said.
He said the province is ready to support federal tariffs as part of the country’s first line of retaliation. If necessary, they have an escalation plan prepared under provincial jurisdiction.
Trudeau, meanwhile, has threatened a dollar-for-dollar retaliation in tariffs, which has the support of the two top rivals seeking to replace him as Liberal Leader, Mark Carney and Chrystia Freeland.
