Analysis Highlights Severe Impact of Proposed U.S. Tariffs on Canadian Economy
A new report by CIBC reveals that sweeping tariffs imposed by the U.S. could cost the Canadian economy up to 3.25% of GDP, even with exemptions for key sectors such as oil and gas. The analysis examines four scenarios of potential tariffs ranging from 10% to 25% on Canadian imports.
U.S. President Donald Trump recently floated the idea of imposing a 25% tariff on Canadian and Mexican goods, with a possible implementation date of February 1. Prime Minister Justin Trudeau has responded, emphasizing that Canada would retaliate if such measures are introduced, stating that “everything is on the table.”
The CIBC report estimates the economic impact based on different tariff scenarios:
- 20% Tariff with Commodity Exemptions: A 3.25% reduction in Canada’s GDP, as commodities represent 46% of Canadian exports to the U.S.
- 10% Tariff Excluding Commodities and Autos: A less severe hit of 1.35% to GDP, with exemptions covering 60% of Canadian exports.
The report notes that taxing energy and automotive exports is unlikely, as these sectors are deeply integrated with the U.S. economy. Together, they account for 42% of Canada’s total exports to the U.S. Imposing tariffs on these goods would disrupt American jobs, contradict energy policies, and drive inflation.
President Trump has consistently voiced protectionist sentiments, stating that the U.S. does not “need their cars and we don’t need the other products.” However, his administration’s first steps involved commissioning a trade practices study rather than immediate action, with results expected by April 1.
Prime Minister Trudeau, speaking at a cabinet retreat in Montebello, Quebec, emphasized the mutual reliance of the Canada-U.S. trade relationship. He argued that U.S. economic growth depends on Canadian energy, critical minerals, and resources.
A separate TD Economics report further dissected the Canada-U.S. trade relationship, debunking Trump’s claim that Canada produces 20% of vehicles sold in the U.S. The actual figure is closer to 10%.
The report highlighted Canada’s energy exports as the key driver of the U.S. trade deficit with Canada. Without these exports, the U.S. would have a $60 billion trade surplus with Canada.
While the prospect of sweeping tariffs poses a significant economic threat, both reports suggest practical limitations and potential retaliation may temper the scope of such measures. For now, Canada remains committed to defending its economic interests while emphasizing the importance of its trade relationship with the U.S.