Analysts share their insights on the impact of proposed tariffs
A new report from CIBC warns that sweeping US tariffs could slash Canada’s GDP by as much as 3.25%, even with exemptions for key industries like oil and gas. The analysis, released Tuesday, evaluated several scenarios in which US president Donald Trump imposes tariffs ranging from 10% to 20% on Canadian imports.
Speaking Monday evening, Trump suggested the possibility of implementing 25% tariffs on Canadian and Mexican goods as early as February 1. Prime minister Justin Trudeau responded firmly, saying that Canada would not hesitate to retaliate, emphasizing, “everything is on the table.”
Economic impact
The CIBC report highlighted the substantial risks to Canada’s economy. A 20% tariff that exempts commodities—accounting for 46% of Canadian exports to the US—would still lead to a 3.25% GDP decline. In a less severe scenario, where a 10% tariff excludes both commodities and autos, the economic impact would shrink to 1.35%, as approximately 60% of exports would remain unaffected.
The analysis noted that the US might avoid taxing sectors like oil, gas, and automotive due to their heavy reliance on Canadian counterparts. These industries represent 28% and 14%, respectively, of Canada’s total exports to the US.
“Doing so would come at a key cost to American jobs, contradict Trump’s cheap energy initiatives, and materially increase inflation,” the report said. “Realistically, we do not believe a permanent 25% sweeping tariff is a credible threat in the immediate future — implementation hurdles, negotiation, and the high risk of retaliation in this scenario makes it little feasible that a trade war will get that far — at least in our opinion anyways.”
US-Canada trade tensions
Trump’s administration has frequently targeted trade policies with Canada, claiming they disadvantage US workers. Earlier this month, he stated, “we don’t need their cars and we don’t need the other products.” Yet, his trade strategy has evolved from threats to action, as reflected in an executive order directing a comprehensive study on trade practices by April 1, The Canadian Press noted.
At a cabinet retreat in Montebello, Quebec, Trudeau underscored the importance of avoiding tariffs but stressed that Canada is prepared to respond. He noted that if Trump envisions a “golden age” for the US, he will need the resources, energy, and minerals that Canada offers.”
Broader implications
A separate study by TD Economics underscored the interdependence of Canada-US trade. Economists Marc Ercolao and Andrew Foran noted that Canadian energy exports drive the US-Canada trade deficit. Without these exports, the US would run a $60 billion trade surplus with Canada.
The TD report also contested Trump’s claim that Canada produces 20% of cars sold in the US, estimating the actual figure closer to 10%. It pointed out that shifting Canadian auto production to the US would face significant logistical challenges.
Despite Trump’s assertions of a $200 billion US subsidy to Canada, the report clarified that the figure is exaggerated and does not align with official trade data. It emphasized that the trade deficit reflects US demand for energy products rather than a financial transfer.
“The trade deficit the US runs with Canada reflects their economic outperformance and above-average spending of Americans that’s driving a hunger for energy products,” the report said.
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