As Trump’s tariff threat looms, what would a US-Canada ‘trade war’ mean?

Montreal, Canada – Donald Trump is little than a period distant from being sworn successful arsenic the adjacent president of the United States, and the Republican person is acceptable to usher in a fig of superior home and overseas argumentation shifts.

In beforehand of Trump’s inauguration connected January 20, countries astir the satellite person been preparing for different “America First” medication that could drastically change their relationships with Washington.

For Canada, a apical US planetary ally, the countdown to Trump’s 2nd word has besides been a countdown to a looming threat that could upend the Canadian system and years of beardown commercialized ties betwixt the neighbouring nations.

Late past month, Trump said helium planned to impose 25-percent tariffs against Canada – arsenic good arsenic Mexico – if the state did not bash much to stem irregular migration and the travel of amerciable drugs implicit its borderline with the US.

The plan, which has drawn wide interest from Canadian politicians, volition travel into effect “on January 20th, arsenic 1 of my galore archetypal Executive Orders”, Trump said connected his Truth Social website.

While Canadian Prime Minister Justin Trudeau has stressed the request for dialog and cooperation, Trump’s informing has thrown Canadian authorities into disarray.

Last week, Canadian Finance Minister and Deputy Prime Minister Chrystia Freeland resigned implicit a disagreement with Trudeau implicit however to grip Trump. She said Canada needed to instrumentality the menace of tariffs “extremely seriously” and warned of “a coming commercialized war” with the US.

But is simply a “trade war” really looming? What would imposing 25-percent US tariffs connected Canadian goods and services mean for some Canada and the United States? And volition Trump truly travel done connected his threat?

Here’s what you request to know.

First off, what did Trump accidental exactly?

In a post connected Truth Social connected November 25, Trump said helium planned to “charge Mexico and Canada a 25% Tariff connected ALL products coming into the United States”.

“This Tariff volition stay successful effect until specified clip arsenic Drugs, successful peculiar Fentanyl, and each Illegal Aliens halt this Invasion of our Country!” the Republican president-elect wrote.

“Both Mexico and Canada person the implicit close and powerfulness to easy lick this agelong simmering problem. We hereby request that they usage this power, and until specified clip that they do, it is clip for them to wage a precise large price!”

How did Trudeau respond?

The Canadian premier curate spoke to Trump the aforesaid evening that helium threatened the tariffs.

“We talked astir immoderate of the challenges that we tin enactment connected together. It was a bully call,” Trudeau told reporters the adjacent morning.

“This is simply a narration that we cognize takes a definite magnitude of moving on, and that’s what we’ll do,” helium said, adding that helium stressed to Trump the value of maintaining beardown ties betwixt Canada and the US.

In precocious November, Trudeau made a astonishment sojourn to Mar-a-Lago, Florida, for talks with the US president-elect astir the mode forward. The Canadian authorities besides unveiled a bid of measures past week that it said would bolster information astatine the US-Canada border.

But portion the premier curate has urged Canadian absorption leaders and provincial premiers to articulation a agreed “Team Canada” attack to the incoming US administration, helium remains nether pressure to bash immoderate it takes to debar the tariffs.

Trudeau has stressed the value of a beardown US-Canada narration [File: Patrick Doyle/Reuters]

How important is the US-Canada commercialized relationship?

Last year, the US and Canada exchanged $2.7bn ($3.6bn Canadian) successful goods and services regular crossed their shared border, according to Canadian authorities figures.

“Many of these goods impact co-investing and co-development making our networks highly integrated,” the authorities said.

According to US Census Bureau information for 2024, done October, the US exported much than $293bn worthy of goods to Canada portion imports from its neighbour totalled astir $344bn.

That made Canada the US’s second-largest trading spouse down Mexico, accounting for 14.4 percent of full trade.

The 2 countries besides are signatories to the US-Mexico-Canada commercialized statement (USMCA), a trilateral woody completed during Trump’s archetypal word successful bureau that updated the longstanding North American Free Trade Agreement (NAFTA).

What goods are being traded?

Canada exports a scope of products to the US, including astir notably petroleum.

The state is the US’s largest overseas vigor supplier: Sixty percent of American crude lipid imports came from Canada successful 2023, up from 33 percent a decennary earlier, according to the US Energy Information Administration probe group.

Canada sent astir 97 percent of its crude lipid exports southbound of the borderline past year. The immense bulk of those supplies came from the oil-rich state of Alberta.

It besides exports centrifugal vehicles and parts; forestry products; chemicals and plastics, and minerals to the US, arsenic good arsenic supplies of electricity.

On the flip side, the goods that Canada imports from the US are akin to what it exports.

The state imports centrifugal vehicles and parts, arsenic good arsenic vigor products, from its confederate neighbour. Canada besides imports machinery; proscription equipment, and chemicals and plastics, among different things.

“Fully integrated US-Canada proviso chains beryllium successful dozens of sectors and hundreds of industries,” explains Roy Norton, a planetary chap astatine the Wilson Center deliberation vessel successful Washington, DC.

“Components made successful 1 oregon the different state routinely comprise portion of the last merchandise coming disconnected the assembly enactment successful the different country. The effect of this integration has been to support prices down successful some countries, enhancing the planetary competitiveness of US and Canadian firms.”

A idiosyncratic checks nether the hood of a pick-up motortruck for prime power astatine an assembly works successful the US authorities of Michigan successful 2013 [Rebecca Cook/Reuters]

All right, truthful what effects would a 25-percent US tariff person connected Canada?

Economists and different experts person been wide that 25-percent tariffs would deed Canada hard.

“Let’s not kid ourselves,” Trudeau said earlier this month. “Twenty-five-percent tariffs connected everything going to the United States would beryllium devastating to the Canadian economy.”

Michael Davenport, an economist astatine Oxford Economics, said (PDF) successful a precocious November study that broad 25-percent US tariffs, combined with proportional retaliatory measures by the Canadian government, would propulsion Canada into a recession successful 2025.

Canadian exports would driblet and the country’s gross home merchandise would autumn 2.5 percent by aboriginal 2026, Davenport said. Inflation would scope 7.2 percent by the mediate of adjacent twelvemonth and 150,000 layoffs would propulsion the unemployment complaint to 7.9 percent by the extremity of 2025.

“Canada’s energy, auto, and different dense manufacturing sectors would beryllium hardest deed by the broad US tariffs due to the fact that of the precocious grade of cross-border commercialized successful these industries,” the study said.

“These sectors trust heavy connected exports to the US, but besides root a sizeable stock of their inputs from the US, making them highly exposed to tariffs.”

What astir the interaction connected the US?

Given however integrated the US and Canadian economies are, the United States would beryllium wounded by broad tariffs, arsenic well.

The Oxford Economics study said the 25-percent US tariffs and akin retaliation from Canada would propulsion the US into what’s known arsenic a “shallow recession”, or when immoderate parts of the system are doing good portion others are struggling.

Disruptions to the North American proviso concatenation would wounded American manufacturers and section economies.

An October study for the Canadian Chamber of Commerce’s Business Data Lab noted that Canada is the superior export marketplace for 34 US states — making them “surprisingly babelike connected Canadian trade”.

Trevor Tombe, an economics prof astatine the University of Calgary and the report’s author, noted for illustration that Montana’s commercialized with Canada accounts for 16 percent of the state’s system portion Michigan’s is 14 percent. “Even arsenic acold distant arsenic Texas, commercialized with Canada inactive accounts for 4 percent of the authorities economy,” Tombe said (PDF).

Karl Schamotta, main marketplace strategist astatine Corpay, a US-based concern payments and absorption company, said successful a marketplace little from precocious November that, fixed what is traded betwixt the US and Canada, Trump’s program “looks similar an ain goal”.

“US imports from Canada are heavy concentrated successful products that marque up a large stock of middle-class depletion baskets – oil, earthy gas, centrifugal vehicles, food, and gathering supplies – meaning that taxation increases volition beryllium highly visible,” Schamotta wrote.

“On the flip side, exports to Canada are often of the higher value-added benignant … – suggesting that a immense scope of businesses successful battleground states could beryllium negatively impacted. If the US raises tariffs by the magnitude threatened – and if Canada responds successful benignant – the home governmental blowback could derail a scope of important argumentation projects.”

Canada, location to the Alberta tar sands, is the US’s largest overseas vigor supplier [File: Todd Korol/Reuters]

Will Trump travel done connected his threat?

That remains to beryllium seen, but galore experts person said they judge Trump is posturing and does not mean to enforce broad 25-percent tariffs connected Canada.

Instead, immoderate accidental the US president-elect is hoping to extract concessions from his country’s bluish neighbour, peculiarly connected longstanding commercialized and migration issues.

“Notably, the overwhelming statement among economists is steep tariffs, particularly connected Canada and Mexico, would pb to adverse near-term proviso concatenation disruptions and inflict symptom connected US businesses and households,” Marc Ercolao, an economist astatine TD Economics, said successful a report successful precocious October, conscionable earlier the US election.

“We fishy that the erstwhile President wouldn’t tolerate a recession oregon large marketplace daze connected his watch, but the nett effect of his policies could pb to conscionable that.”

Ercolao added that the “most apt scenario” nether a 2nd Trump medication would beryllium for Washington to question concessions nether the pending reappraisal of the USMCA free-trade agreement, acceptable for 2026.

Davenport, the Oxford Economics economist, echoed that successful his report, saying that broad tariffs would harm the US system and the US-Canada commercialized relationship, and “directly alert successful the look of the USCMA”.

Instead, helium said that “it’s much apt that Trump volition enforce targeted tariffs connected circumstantial areas that person been cardinal points of contention successful Canada-US commercialized relations successful the past”.

“These see steel, aluminium, different basal metals, lumber, and cultivation products similar dairy.”

If the US tariffs are imposed, volition Canada enact retaliatory measures?

That remains unclear.

So far, Trudeau has not announced immoderate factual plans to enforce immoderate retaliatory tariffs oregon different measures connected the US. But the Canadian premier curate has said his authorities volition “respond to unfair tariffs successful a fig of ways”.

“We’re inactive looking astatine the close ways to respond,” helium said connected December 9.

Citing unnamed officials acquainted with the discussions, Bloomberg reported earlier this period that Trudeau’s authorities is examining the anticipation of levying export taxes connected large Canadian exports to the US.

The officials said export levies would beryllium a “last resort”, according to the report, portion “retaliatory tariffs against US-made goods, and export controls connected definite Canadian products, would beryllium much apt to travel first”.

For his part, Conservative opposition person Pierre Poilievre, whose enactment is wide expected to triumph national elections slated for adjacent twelvemonth successful Canada, has utilized Trump’s tariffs menace to onslaught Trudeau and request his resignation.

But Poilievre has offered fewer details of however helium would respond to the US tariffs if helium were premier minister. “President Trump is simply a dealmaker,” helium told CTV News connected Friday. “He wants America to win, there’s nary question. But I privation to amusement him that Canada tin triumph astatine the aforesaid time. He volition enactment America first; I volition enactment Canada first.”

Pressed connected what that means successful presumption of policy, Poilievre added, “What are the negotiating tools I have? I tin say, ‘Look, Mr President, if you effort to cripple our economy, obviously, we would person to respond with counter-tariffs that would wounded connected the American side.'”