Tariffs in Canada: Making Sense of the U.S.-Canada Dispute
After a whirlwind 72 hours that saw the United States announce a 25% tariff on most Canadian goods, a Canadian response that targeted tariffs on $155 billion worth of U.S. products, and a bout of rapidfire negotiations, the threat of a full blown U.S.-Canada trade war has subsided.
For now.
On February 3, 2025, the U.S. and Canada reached an agreement that will delay both country’s tariffs for 30 days. In exchange for the tariff reprieve, Canada has agreed to spend $1.3 billion to increase border security and surveillance and a further $200 million to combat drug trafficking.
It’s a positive development in what’s been a confusing situation. The pause gives the two countries a chance to consider the implications of a trade war, and gives Canadians a little more time to understand what tariffs are, who pays them, and how a tariff standoff with the U.S. might affect the economy.
A tariff timeline
On February 1, 2025, U.S. President Donald Trump issued an executive order to impose 25% tariffs on goods imported from Canada. Energy resources would be subject to slightly lower tariffs of 10%, according to the order. The U.S. tariffs were to take effect on Tuesday, February 4, 2025.
On February 2, 2025, the Canadian government issued its response, with Prime Minister Justin Trudeau announcing that Canada will impose 25% tariffs against $30 billion worth of American goods on Tuesday, February 4, 2025. Tariffs on an additional $125 billion worth of American goods were to take effect three weeks later.
On February 3, 2025, the U.S. and Canadian governments announced a 30-day suspension of tariffs. As part of the agreement, Canada has pledged to improve security along the U.S.-Canada border at a cost of at least $1.5 billion.
Tariffs: The basics
At their simplest, tariffs are taxes applied to goods that are imported from a foreign country. Tariffs aren’t new, in fact, nearly all developed countries impose some kind of tariff.
There are a few main types:
Ad valorem: A percentage-based tariff applied to an item’s value (10% of a car’s price, for example).
Specific: A fixed amount per unit, regardless of the item’s price (such as, $5 per kilogram of imported cheese).
Rate quota: Lower tariffs that apply up to a certain import limit, and then trigger an increase after the quote is exceeded.
Blanket tariffs: A single tariff rate that applies across all imported goods from a specific country, regardless of the product type or value (such as, “25% on all Canadian goods”).
Who pays tariffs?
Tariffs are paid by the companies who import foreign goods — not the exporting countries. The U.S. companies that import Canadian goods will pay the tariffs announced by Trump. Canadian companies will pay the tariffs announced by Trudeau.
Companies often raise their prices to offset the cost of tariffs. In these cases, consumers might wind up “paying for” the tariffs, but they don’t literally pay the tariffs themselves.
What tariffs have been announced so far?
U.S. tariffs on Canadian goods
Trump’s original tariff announcement included a 25% levy on goods exported from Canada to the U.S. A smaller 10% tariff was applied to Canadian oil.
It’s important to note that the White House characterized the move as implementing “additional” tariffs on Canada, so it’s not as if this is a brand new phenomenon. U.S. tariffs on Canadian softwood lumber, for example, have been in effect for years.
Canada’s tariffs on U.S. goods
The government of Canada planned to impose its own 25% tariffs on February 4 and released a list of targeted American goods. It included:
Poultry and eggs.
Dairy.
Sugars, chocolate and ice cream.
Sausages and other prepared meat.
Citrus, melons, apricots, cherries, peaches, tomatoes and several berries.
Nuts and preserved fruit.
Beer, wine and other fermented beverages.
Sauces and condiments.
Coffee and tea.
Seasonings: pepper, nutmeg, vanilla, ginger and several common herbs/seeds.
Wheat, rye, barley, oats and rice.
Pasta.
And that’s just a fraction of the food and drink items included in the list of tariffs released by the Department of Finance. Clothes, tires, floor coverings, soap and shampoo — it’s a worryingly long list of items that could have cost you more.
Why is the U.S. proposing tariffs on Canada?
A country may put tariffs into place for a variety of reasons, such as:
Increasing national revenue through import taxes.
Reducing a perceived reliance by limiting the consumption of goods produced outside the country.
Protecting domestic companies and jobs by making foreign goods more expensive.
Applying economic pressure on a trading partner.
Trump’s proposed tariffs actually tick all of those boxes.
The revenues generated by taxing Canadian (as well as Mexican and Chinese) goods could be used to offset the cost of extending his 2017 tax cuts.
Applying economic pressure on Canada could rebalance a trade relationship Trump has deemed “tough” and tilted in Canada’s favour.
U.S. companies who can’t afford to pay the tariffs might be forced to choose U.S.-based suppliers instead.
Beyond these economic rationales, Trump has also cited the flow of fentanyl and undocumented immigrants into the U.S. from Canada as justifications for the tariffs. Despite conflating the security situation at the U.S.-Canada border with that of the U.S.-Mexico border, there is no statistical backing for Trump’s claims.
In its initial announcement of the proposed levies, the White House said tariffs will be implemented until “the crisis is alleviated.” However, with no clear criteria outlined, it remains uncertain what conditions would lead to the threat of tariffs being lifted.
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How could these tariffs affect you?
Whatever the intention, tariffs often have negative consequences for consumers — in both countries involved.
If they are implemented, the potential effects of Trump’s tariffs on Canada include:
Higher prices for consumers. In addition to suppliers having to raise their prices because of increased costs, there’s also the risk of higher demand for locally-produced items leading to shortages and price spikes of their own.
Job losses in industries dependent on exports. Food, automobile, aerospace and petroleum producers could all take a major hit.
Retaliation from trade partners, i.e. a “trade war.” Trump has reportedly threatened to impose higher tariffs if Canada retaliates with import taxes of its own.
Global supply chain disruption. If U.S. importers turn to non-Canadian countries for their goods, that increased demand could hamper production capacity and put pressure on shipping routes.
Canada exports billions of dollars in goods and services to the United States each day. If demand for those goods were to suddenly dry up because American companies don’t want to pay tariffs, it could have dire consequences for the economy — including recession.
Some estimates of the potential damage include:
A 2.6% decrease in Canada’s GDP, costing Canadian households an average of $1,900 annually, according to the Canadian Chamber of Commerce.
The loss of more than 150,000 Canadian jobs, according to analysts at Oxford Economics — although government officials in some provinces predict much higher numbers.
Potential inflation, as higher costs trickle down to consumers.
“At a minimum, a permanent tariff will cause a one-time, permanent increase in price levels,” the Bank of Canada stated in its January 2025 Monetary Policy Report. “Whether tariffs lead to ongoing inflation will mostly depend on how household and business expectations for inflation respond to tariff-related price level increases.”
This story will be updated as events progress.
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Sources
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- Council on Foreign Relations. What Are Tariffs?. Accessed Jan 30, 2025.
- PBS. Trump favors huge new tariffs. How do they work?. Accessed Jan 30, 2025.
- Georgia State University. Are tariffs good or bad for the economy? Research says they can be bad for the supply chain. Accessed Jan 30, 2025.
- Canadian Chamber of Commerce. The Cost of Canada-U.S. Trade Disruption on Full Display with New Trade Tracker. Accessed Jan 30, 2025.
- ICIS. INSIGHT: Trump’s 25% tariff would trigger broad recession in Canada. Accessed Jan 30, 2025.
- Bank of Canada. January 2025 Monetary Policy Report . Accessed Jan 30, 2025.
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