Trump Tariffs: What Canadian Markets Will be Most Impacted?

The U.S.-Canada news cycle has been busy lately, from hockey to the Liberal Party nomination process. Of course, these developments have taken a back seat to the situation surrounding the U.S.-Canada tariffs dispute.

With a new administration in Washington, trade policy has been front and centre of President Donald Trump’s economic agenda, with a focus on tariffs in Canada. As part of the White House’s efforts to reduce illegal immigration, curtail the drug trade, and level the playing field in worldwide trade, the president is employing the instrument of tariffs to achieve these objectives.

In his first month in the Oval Office, Trump has proposed 25-per-cent tariffs on all steel and aluminum, 25-per-cent levies on all Canadian goods entering the United States, and reciprocal tariffs.

While Canada braces for the enactment of these measures, economists and organizations are examining the potential adverse effects of these public policy pursuits south of the border.

U.S. Tariffs on Canada – Who Gets Hurt?

The Canadian Chamber of Commerce recently published a study, using Statistics Canada data that assesses the potential impact of President Trump’s tariffs on 41 Canadian cities. Researchers determined that municipalities that depend on automobile and parts manufacturing and crude oil exports will bear the brunt of tariffs. Saint John, New Brunswick and Calgary, Alberta, were at the top of the list, primarily because they rely on energy exports for their economies.

Saint John is home to the Irving Oil Refinery, the largest crude oil refinery in the nation. Estimates suggest it processes more than 320,000 barrels of crude oil per day, with approximately 80 per cent exported to the United States.

Meanwhile, Calgary is a significant location for crude oil and natural gas shipments to the U.S. Midwest, specifically Illinois. At the same time, Calgary’s economy, due to diversification efforts in recent years, also exports agricultural products and other key goods to the United States. In total, the city ships about $119 billion of goods.

“The massive value at play from crude oil exports (with energy exports worth over $176 billion in 2024) and concerns of passing higher gas prices onto Americans explain why Trump applied a lower tariff on Canada’s energy exports (10% versus 25% for all other export categories).”

That said, Alberta could enjoy sizeable leverage over the United States, which explains why Trump lowered his tariff threats on Canadian oil to ten per cent. Because the new administration promised to slash energy costs in half and bring down inflation, the president and the Republican Party cannot afford to play a game of chicken with Canada’s energy sector.

Consider these numbers, if you will.

The American economy consumes approximately 20 million barrels of crude oil per day. The United States produces roughly 13 million barrels a day. Canada ships 4.5 million barrels daily to the U.S. Even if President Trump could boost output by three million barrels a day – something that energy experts say would be challenging since the industry responds to prices rather than government edicts – the U.S. would be unable to satisfy domestic demand by itself.

Meanwhile, the report identified several other cities as the most tariff-vulnerable:

• Windsor, Ontario
• Kitchener-Cambridge-Waterloo, Ontario
• Brantford, Ontario
• Guelph, Ontario
• Saguenay, Quebec

The cities of Southwestern Ontario would be harmed because they are home to large assembly plants for automakers Ford and Stellantis. The cities also conduct enormous bilateral trade with Michigan.

“Kitchener-Cambridge-Waterloo, Brantford and Guelph are located further east on Highway 401 and specialize in producing auto parts, other advanced manufacturing and machinery and equipment, as well as agricultural exports,” Tapp noted. “For example, Guelph is home to Linamar’s headquarters (Canada’s second-largest auto parts maker) as well as Sleeman Breweries.”

Hamilton is Canada’s steel capital and exports raw inputs for automobile production, construction, and manufacturing. Mayor Andrea Horwath estimates that Trump’s steel tariffs could cost the economy up to $1.2 billion and affect as many as 48,000 jobs. Overall, more than $20 billion worth of steel is traded between the United States and Canada.

Conversely, the study listed Canadian cities that could be the least susceptible to tariffs:

• Sudbury, Ontario
• Kamloops, British Columbia
• Nanaimo, British Columbia
• Winnipeg, Manitoba
• Regina, Saskatchewan

However, economic conditions could change rapidly in cities like Nanaimo and Kamloops. The study was completed days before President Trump revealed that he was considering instituting a 25 per cent tariff on international lumber and wood products.

While the U.S. government already maintains 14-per-cent duties on softwood lumber coming from British Columbia, the province warns that its lumber exports could face tariffs exceeding 50 per cent if President Trump follows through on his plans. This would significantly impact the B.C. economy since it exports approximately $3.3 billion worth of softwood lumber to the U.S. Additionally, Canada continues to be America’s largest source of forest product imports, accounting for nearly half (44 per cent) in 2023.

Ravi Parmer, the B.C. Forests Minister warned these tariffs would “absolutely be devastating” for both the province and the rest of the country. “It’s important that we keep this industry going and those workers employed,” he said, adding that the levies would also hurt American communities rebuilding, whether because of the hurricanes in North Carolina or the wildfires in California.

Homes need to be constructed again in these places, and slapping tariffs on much-needed lumber would exacerbate cost pressures.

Vancouver, which experts suggest could resist the tariff headwinds, has started taking action to shield the city from these plans. The Vancouver council directed staff to assess various defensive measures, including property tax deferrals for commercial properties, temporary fee reductions for patio permits, and adjustments to the city’s business licensing regime.

A Canada Recession?

Could U.S. tariffs on Canada trigger a recession? Two words: It depends. While not everyone is shouting the R-word, many are sounding the alarm about lower growth and higher price inflation.

At the February policy meeting, the Bank of Canada estimated that the annual GDP growth rate in the first year of tariffs would be 2.5 per centage points lower. By the second year, it would be 1.5 per centage points lower, with a return to normal in the third year. “While the effect of the tariffs on the rate of growth is temporary, the level of GDP is permanently lower, reflecting a decline in the long-run level of Canadian productivity due to the distortionary effects of the tariffs,” the central bank wrote.

In addition, the inflation flame could be rekindled after sliding below the institution’s two per cent target. “CPI inflation is subject to sustained upward pressure over this period,” the Bank of Canada wrote. “Considerable excess supply and declining commodity prices largely offset the direct impact of tariffs in the first year, but inflation rises as excess supply is gradually absorbed in subsequent years.”

When President Trump first threatened Canada with 25 per cent across-the-board tariffs in November, the Canadian Chamber of Commerce projected that they would shrink the GDP by 2.6 per cent, costing each Canadian about $1,900 per year.

RBC Economics averred that the U.S. administration’s tariffs would ignite the “most significant trade shock” to Canada since the 1930s since it “could wipe out Canadian growth for up to three years.” Frances Donald, RBC’s chief economist, and Nathan Janzen, the assistant chief economist, forecast that 25 per cent tariffs would chip away at Canadian GDP by as much as 4.2 per centage points.

“GDP per capita has declined for eight of the past nine quarters, and business investment has been stagnant,” they stated in a research note. “Both cyclically and structurally, Canada’s economy is not well positioned to absorb a shock of this scale.”

TD Economics said that the national economy could slip into a technical recession if U.S. tariffs on Canada are in place for five to six months. Additionally, the unemployment rate would surpass seven per cent.

“It would officially tip the domestic economy into recession, albeit a relatively shallow one at that point,” bank economists wrote in a Feb. 1 note.

The Tariffs Wild Card: Donald Trump

Market watchers and public policymakers agree that a tsunami of uncertainty makes crafting policy responses more challenging. The main wild card? Trump himself. On Inauguration Day, the universal tariffs appeared to be coming until they did not. While the 25-per-cent tariffs on Canadian goods seemed guaranteed, the White House quickly pivoted within hours and issued a 30-day pause. The uncertainty alone is causing much grief for Canada’s fragile economy, but implementing tariffs would quickly worsen conditions from British Columbia to Prince Edward Island. Whether this is a Canadian recession or a bout of stagflation remains to be seen.