What would Trump’s tariffs mean for Canadians?

U.S. President-elect Donald Trump’s proposed tariffs would have wide-ranging implications throughout both the Canadian and American economies.

Some industries would be hit harder than others, but overall experts predict both economies would take a significant hit, with more of an effect on the Canadian side.

Here is a look at what the 25 per cent across-the-board tariffs could mean for Canadians, if Trump does follow through on his pledge and border issues are not resolved by the time of his inauguration on Jan. 20:

Prior to the Nov. 5 election, University of Calgary economics professor Trevor Tombe conducted an analysis for the Canadian Chamber of Commerce looking at what would happen if across-the-board tariffs were implemented.

Tombe’s analysis looked at the possibility of 10 per cent tariffs, not 25 per cent, given that during the election Trump had promised to introduce a universal 10 per cent tariff on all American imports.

He such a move, “Would significantly impact trade flows, productivity, prices and real income levels in both countries.”

Canadian products going into the United States would become more expensive and if Canada retaliated, affected goods from the United States would see price hikes.

He predicted the implementation of a 10 per cent tariff, if matched by other countries in retaliation, would lead to a 1.5 per cent decline in real incomes in Canada and a nearly 1.6 drop in labour productivity.

In the United States, real income and labour productivity would take an approximate one per cent hit.

After Trump announced his 25 per cent tariff threat on social media Monday, Tombe updated his prediction.

A 25 per cent tariff, he said, would result in the Canadian economy taking an approximate 2.6 per cent hit of real GDP annually, or around $2,000 per person.

The Canadian economy would enter into a recession, he said.

Canadian Chamber of Commerce

In work w/ @CdnChamberofCom, I estimated a 10% tariff on Canada-U.S. trade: https://t.co/0Cwz1KBQ4T

Updating this to a 25% tariff, and I find that the Canadian economy would take a ~2.6% real GDP hit (annually) or ~$2k per person.

Next year will be a #cdnecon recession.

— Trevor Tombe (@trevortombe) November 26, 2024

Of course, some industries would be hit harder than others, with energy, motor vehicles and parts topping the list, Tombe said.

The tariffs could lead to periods of unemployment for some and their specific impacts could change over time, he said, noting his model took a longer-term look at the situation.

Additionally, different areas of Canada would experience different impacts.

“Recognizing the regional nature of trade also helps in understanding how economic shocks in one location may propagate to economies in another country. Different parts of the United States can experience economic booms while others face relative decline, and the same is true in Canada,” he said.

In Ontario, for instance, 41 per cent of the province’s overall economy is based on trade with the United States, while in B.C. that figure is 12.6 per cent.

Canadian Chamber of Commerce

In the meantime, Canadians are already seeing the impacts from Trump’s pledge through a further erosion of purchasing power.

The Canadian dollar has been trading around four-year lows recently.

The loonie was trending lower since around the beginning of October, dropped even further after the Nov. 5 election in the United States, and then again after Trump’s tariff threat on Monday.

It has recovered slightly since, but was sitting at just 71.4 cents U.S. Thursday afternoon.

BMO Capital Markets senior economist Robert Kavcic told The Canadian Press that the loonie was already being pressured by a softer Canadian economy and interest rate cuts by the Bank of Canada.

A low Canadian dollar could lead to increased costs for products imported from the United States, in turn becoming inflationary, though it could offset some of the costs for Americans importing Canadian goods if tariffs are imposed.

And Canadians are already feeling the pinch from the low loonie. Oil, for instance, is normally priced in U.S. dollars, meaning when the Canadian dollar drops compared to the U.S. dollar, the price at the pumps in Canada goes up.

— With files from The Canadian Press