On the evening of his inauguration, President Donald J. Trump announced new tariffs could come as soon as February. If the proposed 25 per cent tax on all Canadian goods sees the light of day, it will invoke new financial challenges for Canadians.
Canadian financial services company Desjardins describes tariffs as a tax on goods and services crossing through a national border.
Of course, consumers end up paying more. The most common type of tariff is for imports, which means Canadian exporters will pay a tax to the U.S. government. When this type of tariff is implemented, the government can tax all imports as an “across-the-board” form or select goods and services.
Before his inauguration as U.S. President, Trump had already spoken of new across-the-board import tariffs, both globally and closer to home.
Following the ceremony on Monday, Trump announced his intention to impose higher tariffs on Canada and Mexico than on other countries.
He discussed a 10 per cent tariff on global imports, but a whopping 25 per cent on Canada and Mexico that could be in effect as early as Feb. 1.
A study by the Canadian Chamber of Commerce's Business Data Lab (BDL) shows that an across-the-board tariff of 25 per cent on all imports could cause a recession in Canada by mid-2025.
These import tariffs would not necessarily only negatively affect Canadians however.
If the Canadian government decides to retaliate with tariffs, it would shrink the gross domestic product (GDP) of both nations. The BDL report suggests Canada would shrink by 2.6 per cent, and the U.S. GDP would shrink by 1.6 per cent.
Stephen Tapp, the Canadian Chamber of Commerce’s chief economist, wrote in the report that the tariffs will disrupt long-established trade patterns between Canada and the U.S.
A main contributing factor to this is the surge of imports likely to occur over the next few months, as U.S. businesses will be building inventory and making purchases to beat any additional taxes.
Data from Statistics Canada shows this behaviour was seen during the 13 months when steel and aluminum tariffs were in place during Trump’s first term.
When the threat of incoming tariffs became a reality, steel and aluminum exports from Canada increased by over 21 per cent. When the tariffs were officially implemented, the steel and aluminum exports dropped by 46 per cent.
The disruptions these tariffs will create for the trading relationship between the U.S. and Canada and to both nations' economies show the tariffs do not benefit anyone.
