Affordability, economic prosperity and the future of U.S.-Canada trade relations hang in the balance nearly two weeks after Donald Trump returned to the Whitehouse.
President Trump’s declaration to “sign all necessary documents to charge Mexico and Canada a 25 per cent tariff on all products coming into the United States” as one of his first executive orders did not come to fruition on inauguration day January 20.
Any relief felt by Canadians, however, was short-lived as news broke on the evening of January 20 that tariffs may be expected on February 1, 2025.
Another update emerged on Wednesday, January 29, when President Trump’s Secretary of Commerce nominee, Howard Lutnick, laid out a two-phase tariff plan for Canada and Mexico. According to Lutnick, phase one of this approach will feature emergency action to address the illegal drug crisis between borders, which may be implemented in the coming days. The second phase, which includes a broad range of tariff options, will be informed by the U.S.’s investigation into trade deficits and migration — two studies that are expected to be complete by April 1, 2025.
Canada has taken steps to increase border security in an attempt to avoid incoming tariffs, including the announcement of the $1.3-billion Border Plan, a “comprehensive initiative designed to minimize unnecessary border traffic, enhance detection capabilities and safeguard against illegal crossings and non-genuine immigration claims.”
Despite these measures, Canadians are still waiting on President Trump’s February 1 announcement, which may lead to lasting economic damage for the Canadian economy.
The impact of a 25 per cent blanket tariff on the Canadian economy
The Canadian Chamber of Commerce’s (CCC) Business Data Lab recently released the Canada-U.S. Trade Tracker, which illustrates the economic integration between the two economies and explores the risk posed by tariffs.
“Understanding the nuances of this bilateral relationship has never been more critical,” says Catherine Fortin Lefaivre, vice-president, International Policy & Global Partnerships at the CCC.
An economic impact report published by Deloitte in December 2024 also breaks down the impact of these tariffs with our country’s largest trading partner.
According to the report, $594 billion (77 per cent) of all Canadian exports are destined for the U.S. market, the majority being mineral fuels, oils and natural gas, vehicles, machinery, mechanical appliances and plastics. These exports support approximately 2.2 million jobs across Canada.
If a 25 per cent blanket tariff is implemented, Canada would lose approximately $275 billion in real Gross Domestic Product (GDP) — the total value of all goods and services produced in Canada — cumulatively by 2030. This figure more than doubles ($599 billion) if Canada responds by imposing retaliatory tariffs on U.S. goods.
If Canada elects a “dollar-for-dollar” retaliation strategy, which Prime Minister Justin Trudeau announced he is in favour of if tariffs cannot be avoided, the Canadian economy will suffer further. According to the Fraser Institute, “even selective tariffs will increase the cost of living for Canadians as importers of tariffed U.S. goods pass the tax along to domestic consumers.”
Retaliatory tariffs will also have a negative impact on Canadian productivity, just as reduced demand for Canadian products translates to reduced production and, as a result, job losses and a further decline in the Canadian dollar.
“I think all strategies, both the U.S. concept of a blanket tariff and the Canadian concept of retaliatory tariffs, need to come down a notch,” says Jim Kilpatrick, Global Supply Chain & Network Operations Leader for Deloitte Consulting. “We really need to understand the impact on companies that do cross-border trade, because there are some unintended consequences of these fairly blunt moves.”
Jim Kilpatrick, Global Supply Chain & Network Operations Leader for Deloitte Consulting.
The energy industry faces uncertainty
When we examined the possible impact of President Trump’s re-election on our domestic energy industry in November 2024, there was speculation that Canadian oil may be exempt from any tariffs. This still remains to be seen, however, concern continues to grow following President Trump’s statement to the World Economic Forum on Thursday, January 23.
“We don’t need [Canada] to make our cars, and they make a lot of them,” he said. “We don’t need their lumber because we have our own forests. We don’t need their oil and gas — we have more than anybody.”
That’s not entirely true — while the U.S. may be the world’s largest oil producer, more than half of its crude oil comes from Canada, product U.S. refineries are reliant on.
Canada provides more of the U.S.’s crude oil imports than Mexico, Saudi Arabia and Iraq combined. They also get it at a discount as a result of Canada’s lack of infrastructure for transporting product to the coasts, hindering our domestic ability to sell to other customers beyond the United States.
According to the Wall Street Journal, “Canadian oil typically trades at a 15 per cent or more discount to American crude to account for transport costs, differences in quantity and a limited pool of buyers. That translates to billions in additional annual profits for U.S. fuel makers.”
Recently, leader of the Conversative Party of Canada, Pierre Poilievre, appeared on the Ben Mulroney Show to discuss unlocking Canada’s potential, where he also highlighted how the U.S. profits from Canadian energy exports when it comes to natural gas.
“Natural gas trades for $4 per million metric British thermal units, and it trades for $13 in Europe. 100 per cent of our natural gas exports go to the Americans — they liquify it and they profit from it, just like our oil.”
Profitability is not a one-way street, as evidenced by Alberta Premier Danielle Smith’s recent refusal to sign the first ministers’ joint statement outlining Canada’s commitment to a “full range of measures” in response to tariffs, including export tariffs on Canadian oil and gas.
According to the Deloitte economic impact report, Alberta’s economy is most closely tied to U.S. exports, which represent 34.5 per cent of provincial GDP, 78 per cent of which reflects oil and gas.
What can Canada do?
As uncertainty reigns and Canada remains divided in its approach to dealing with U.S. tariffs, one thing is clear: “Turning off the taps would be a massive blow to both economies,” says Fortin Lefaivre. “The U.S. doesn’t have quick, reliable alternatives to replace Canadian oil — Canada has been a trusted partner in this supply chain, and it’s been a win-win for both sides.
“Alberta drives this trade, supporting hundreds of thousands of jobs in energy, manufacturing, transportation and warehousing,” she adds. “With crude oil making up over 70 per cent of Alberta’s exports, the province is essential to North American energy security and economic integration.”
As Canadian leaders continue to navigate President Trump’s looming threats, two avenues to support continued economic prosperity are on the table: international trade diversification — selling our oil, natural gas and other natural resources to countries other than the U.S. — and the breakdown of domestic barriers to support the flow of goods within Canada.
“Canada has what the world needs — from food, fuel and fertilizer to critical minerals,” says Fortin Lefaivre. “This new mindset presents a significant opportunity for Canada to untether its trading potential and meet global demand for essential goods.”
According to a study by the International Monetary Fund, Canada also has the opportunity to boost GDP by as much as four per cent by removing barriers to interprovincial trade, which was noted in the 2024 Fall Economic Statement.
“Tackling these barriers can be done at little cost to Canadians at a time of heightened affordability concerns,” says Fortin Lefaivre.
Hoping for the best and preparing for the worst
Canada and the United States are at a critical juncture in our shared history, with the understanding that blanket tariffs would be harmful to both economies at a time when affordability and energy security remain top of mind for all North Americans.
Should the tariffs come into effect on February 1, the future of Canada’s prosperity will lie in our political leadership — informed by the priorities of Canadians and the growing demographic of engaged women, industry adaptability and long-term vision for economic diversification.