Prime minister says retaliatory measures will remain unless the US drops its levies
Canada is hitting back against new US tariffs, imposing 25% retaliatory duties on American goods worth C$150 billion. The countermeasures, announced Tuesday, will roll out in two phases unless the US withdraws its levies, Canadian prime minister Justin Trudeau confirmed.
The move follows US president Donald Trump’s decision to enforce 25% tariffs on imports from Canada and Mexico, along with an additional 10% tariff on Chinese goods. The new measures, which took effect Tuesday, build on an earlier 10% tariff imposed on China in February.
Canada’s response includes immediate 25% tariffs on C$30 billion (US$20.6 billion) worth of US goods. A second phase, set to be implemented over the next three weeks, will extend duties to C$125 billion worth of imports, including cars, trucks, steel, and aluminum, according to Bloomberg.
“Our tariffs will remain in place until the US trade action is withdrawn, and should US tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures,” Trudeau said.
He added that Canada’s tariffs would go into effect at midnight unless Trump dropped the US levies.
The financial markets reacted swiftly. The Canadian dollar and Mexican peso fell to one-month lows after Trump’s tariffs took effect, though a weaker US dollar helped limit broader damage. The Canadian dollar was down before recovering 0.3% to 1.4438 per US dollar, while the Mexican peso dropped 0.9% to 20.89 per dollar, its lowest since February 3.
China also retaliated, announcing new tariffs on US agricultural goods. Beijing will impose 15% duties on chicken, wheat, corn, and cotton, and 10% tariffs on soybeans, pork, beef, dairy, and other food products. China also placed 25 US firms under export and investment restrictions, with the new tariffs set to take effect on March 10.
The Bank of Canada warned that a prolonged tariff conflict could shrink the Canadian economy by 3% over the next two years, eliminating economic growth. The hardest-hit sectors include steel and aluminum, as Canada is the largest exporter of these materials to the US.
Reduced US demand for Canadian exports could lead to production cuts, job losses, and rising prices on imported goods, according to the central bank. Consumers and businesses in Canada are expected to scale back spending as a result.
With the Bank of Canada scheduled to make its second decision of the year on interest rates next week (March 12), speculation is likely to intensify around a further cut by the central bank to help the economy absorb a probable huge shock from Trump’s move.
In its January announcement – the Bank’s sixth rate cut in a row – it highlighted how heavily tariffs could affect its outlook for the year ahead.
“The economy is expected to strengthen gradually and inflation to stay close to target,” it said. “However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested. We will be following developments closely and assessing the implications for economic activity, inflation and monetary policy in Canada.”
Leading economists also underlined the likelihood of a rate cut in March if Trump ignited a trade war, while mortgage broker and industry commentator Ron Butler suggested on Monday the central bank could slash rates by 50 basis points next week due to tariffs.
Read next: Canadian big banks urge policy overhaul to counter US tariffs
The US economy is also expected to feel the strain. Higher import costs will be passed on to consumers, effectively acting as a tax hike. Erica York, vice president of Federal Tax Policy at the Tax Foundation, told Yahoo News that Trump’s tariffs amount to “a $130 billion annual tax increase on Americans” and could raise household expenses by $1,000 per year.
The trade dispute is expected to affect an estimated $900 billion in goods and services, according to Bloomberg.
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
