Trump's tariffs would crush the Canadian economy. Why some industry leaders are calling his bluff

Donald Trump's threat A 25 percent tariff on imported goods would have a devastating impact on the Canadian economy. But some Canadian workers, industry leaders and economists are not convinced they will actually be implemented.

In a social media post Trump made Monday evening, the proposed tariffs were taken as a warning to the U.S.'s major trading partners that “they will pay a very high price” unless both Canada and Mexico take aggressive action to address border security sharpen.

But analysts and people working in the affected sectors say the mutually beneficial nature of the trillion-dollar trade relationship between Canada and the U.S. should not be underestimated.

“It's a cost to Canadian, Mexican and U.S. companies” because the countries have deeply intertwined supply chains, said Charles St-Arnaud, chief economist at Alberta Central, a trade association for the province's credit unions.

He sees the tariff proposal as “largely an inducement” by the Trump administration ahead of an impending renegotiation of a free trade deal. Some experts and politicians have long speculated that a new Trump administration would take advantage of this the threat of tariffs as leverage ahead of the 2026 extension of the Canada-United States-Mexico Agreement (CUSMA), a tactic Trump previously used during the original negotiations in 2018.

At this point, St. Arnaud says it's more of a risk. “Nothing has been announced yet,” he said. “But if it happened, it would happen [be] negative for our economy.”

LOOK | What impact would the tariffs have on the Canadian economy?:

The Canadian dollar falls to its lowest since 2020 after Trump tariff threats

The Canadian dollar was trading at 70.87 cents in the US early Tuesday, up from 71.53 cents in the US on Monday, following newly elected US President Donald Trump's promise to impose a 25 percent tariff on all Canadian import products. CBC News senior business correspondent Peter Armstrong provides an overview of the potential effect of Trump's proposal on the Canadian economy.

Oil, energy and cars

The US imported $614.3 billion Cdn worth of goods from Canada in 2022, according to the Office of the U.S. Trade Representative. More recent figures from the US Census Bureau show that the US imported approx $435 billion Cdn in Canadian goods between January and September this year.

“It would be a really substantial blow to both American consumers and American manufacturers,” said Scott Lincicome, vice president of general economics at the Cato Institute's Steifel Trade Policy Center. While importers are responsible for paying tariffs, they typically pass the costs on to consumers, meaning ordinary Americans will have to absorb the higher prices from the proposed tariffs.

The list of goods Canada sends south is long: the country it sends worth billions of natural gas, automobiles and auto parts, machinery, plastics, gold, electricity, timber, aluminum, iron and steel, and agricultural products to its neighbor last year.

The US belongs to Canada dear customer when it comes to oil and petroleum. Sixty percent of U.S. crude oil imports came from Canada in 2022, while Mexico was the next most valuable U.S. supplier, accounting for just 10 percent of those imports in comparison.

A tariff regime that disrupts this type of integration would “introduce a lot of uncertainty into the supply chain,” Lincicome said.

“The market probably remains the best check on Donald Trump's protectionist impulses [U.S.] the moderate reaction of the market What happened last night is a good sign that not many people really believe this is going to happen.”

'There's no point in doing business'

An example of the interrelationship described by St-Arnaud is the automotive sector in Ontario, where auto parts can cross the border multiple times.

The automotive industry is said to be the hardest hit sector after oil and energy. Flavio Volpe, president of the Automotive Parts Manufacturers' Association, put it this way: A 10 percent universal tariff would make it difficult for both the Canadian and American auto industries to make money. But a 25 percent rate?

“Twenty-five isn't even a discussion. There's no point in doing business,” he told CBC News, adding that half of the cars made in Canada are American brands, while half of the components and more than half of the raw materials used to build cars come from the US

We make tools and we make parts together and we make cars together. I expect tough, real negotiations, but I also tell everyone to be patient.”

Volpe says he is not convinced Trump's 25 percent tariff will become a reality.

'Relax a little. He loves doing this.”

LOOK | Tariffs would make doing business pointless, says auto industry leader:

Tariffs of 25% would make business pointless, says the auto parts industry leader

Flavio Volpe, president of the Automotive Parts Manufacturers' Association, says supply chains in the North American automotive industry are so integrated that “there are no boundaries in the automotive sector.” He says that newly-elected US President Donald Trump is 'trying to disrupt the conversation early'.

Others have insisted the threats must be taken serious. Catherine Cobden, president of the Canadian Steel Producers Association, said in a statement that Trump's announcement was “a signal for urgent action.”

There is precedent for Trump delivering on his tariff promises. In 2018, his government imposed a 25 percent tariff on Canadian steel and a 10 percent tariff on aluminum, citing threats to national security. Canada retaliated with its own tariffs, and the years-long tariff war that followed put ratification of the newly created CUSMA on hold.

Cobden wrote that 40 percent of Canada's steel imports come from the United States, while 20 percent of their imports come from Canada.

“Imposing tariffs on Canadian steel will have a huge impact on many industries, such as automotive, energy and construction, making everything more expensive for American and Canadian consumers,” her statement said.

Wheat farmer 'feels optimistic'

Landon Friesen, a wheat farmer from Crystal City, Man., was transporting wheat across the border to Langdon, ND, on Tuesday when he spoke to CBC News. Up to 70 percent of his harvest ends up in the U.S., he said from his parked semi-truck.

“It will probably affect me more than guys who only sell their grain in Canada,” Friesen said, adding that the U.S. and Canada depend on each other for agricultural trade “more than we think.”

Last year Canada exported approximately $56.9 billion Cdn in agricultural products to the U.S., including billions in baked goods, canola oil, beef and pork, chocolate and frozen fries.

The U.S. grain buyers Friesen works with are equally concerned about the amount of traffic they will have to turn away at the border if the tariff takes effect. But ultimately, he says the proposed tariffs will hurt American consumers more than anyone else.

“General Mills imports most of their oats from Canada to the United States. I mean, are consumers ready to see a 25 percent price increase on the shelves? That's a really big thing to think about,” Friesen said.

“I'm optimistic. I think they'll figure it out,” he said. “If we can respond with strong leadership, I think that's fine, as long as we don't run around with our heads cut off about this and panic.”