Canada could lose more from Trump tariffs and retaliation: expert

Canada is not only preparing counter tariffs but also a stimulus package if U.S. President Trump follows through with his threat. Mike Le Couteur explains.

Canadian consumers could be the biggest losers if U.S. President Donald Trump imposes 25 per cent tariffs and Canada follows through with planned retaliation.

“The relationship with the U.S. is asymmetrical: they are 10 times larger than we are,” Ian Lee, a professor at Carleton University’s Sprott School of Business, told CTVNews.ca. “A tariff war will be much more harmful to us than it will be to the Americans.”

Lee points to a recent study that found the economic impact of U.S. tariffs and dollar-for-dollar Canadian retaliation could be five times worse for Canada’s economy.

Although both countries export comparable amounts of goods and services to one another each year, Canadian exports to the U.S. are responsible for a much larger share of Canada’s overall economic activity. In 2022 alone, nearly 80 per cent of all Canadian exports went to its southern neighbour, while just 17.2 per cent of all American exports went to Canada. That means U.S. tariffs on Canadian goods and dollar-for-dollar retaliation could be disproportionately damaging for Canada, which is much more reliant on the U.S. for trade.

“(The tariffs) are not imposed on Americans, they’re imposed on we the Canadian people,” Lee added. “It will drive American goods up in price in Canada to Canadians. This will hurt us. It will make goods more expensive.”

Tariffs and retaliation would likely see the Canadian dollar drop in value, which could further push prices up for Canadians.

“When you have an external shock, it drives down the currency and makes imported goods go up,” Lee said. “If we get into a trade war, we will seriously reduce our standard of living. We will become much less affluent. We’ll become more poor.”

What could become more expensive?

While tariffs, retaliation and a plunging loonie could see many prices go up in Canada, some products could see larger spikes than others.

Karl Littler of the Retail Council of Canada told CTVNews.ca that if you assume everything is going to be subject to retaliatory tariffs, the issue becomes what you can afford to substitute.

“If it’s hard to substitute and you have to substitute from further afield, that that’s going to have the biggest impact,” he said.

With food prices continuing to outpace inflation in Canada, Canadians could stand to feel even more pain at the grocery store. Canada relies heavily on foreign fruit and vegetables, importing US$3.6 billion of fresh produce from the U.S. in 2023, making it a leading destination for U.S. crops.

Sylvain Charlebois, a professor in food distribution and policy at Dalhousie University, says we can expect a variety of food prices to increase in the event of tariffs and retaliation.

“Fresh produce like oranges, grapes, and nuts—especially in the winter months when Canada depends on American agricultural imports—would see steep price increases,” Charlebois told CTVNews.ca. “Processed foods and beverages, which often cross the border multiple times during production, could also face cost hikes.”

The largest U.S. consumer-orientated food exports to Canada include baked goods, cereals and pasta. Specific U.S. products could also be targeted for Canadian retaliation, including Florida orange juice, which could send a political message to Trump’s Republican base. In 2022 alone, Canada imported US$385 million in fruit juice from the U.S., which was the source of nearly two thirds of all juice imported into Canada.

“Margins are incredibly thin in the agri-food sector,” Charlebois said. “A 25 per cent tariff, both ways, would be devastating.”

There could be some exceptions to price increases, Charlebois added. He points to Canada’s mad cow disease crisis in 2003 as an example, when approximately 40 countries closed their borders to Canadian beef.

“If tariffs reduce the profitability of exporting Canadian goods to the U.S., surplus products might become cheaper domestically,” Charlebois said. “For instance, Canadian beef, pork, or even maple syrup could see price drops if exporters lose access to their largest market.”

Centred in southern Ontario, Canada’s automotive industry could see a big hit due to the highly integrated nature of the Canadian and U.S. auto sectors. Canadian parts and steel are important components of the supply chain for U.S. automakers, while vehicles are Canada’s second largest export to the U.S. following crude oil. Canada also imports approximately three quarters of all new vehicles, with the majority coming from the U.S.

“A lot of retail supply contracts are actually denominated in U.S. dollars because it’s the world’s reserve currency,” Littler added. “So if the Canadian dollar plummets, even if you’re buying from another country… you’ve got a problem.”

What’s the solution?

With the looming threat of U.S. tariffs, Prime Minister Justin Trudeau says his government is “prepared for every possible scenario.”

“Everything is on the table, and I support the principle of dollar-for-dollar matching tariffs,” Trudeau said last week.

Lee hopes the Canadian government tries to negotiate before enacting retaliatory measures. He says the U.S. has been clear about sticking points in its relationship with Canada, which include protected Canadian industries like dairy, Ottawa’s new digital services tax on American tech giants, and Canada’s longstanding failure to meet NATO’s defence spending target. Directly addressing issues like these could avoid a disastrous trade war.

“We are going to lose in a trade war because the sheer numbers show that,” Lee said. “There’s only one way out of a trade war: it’s negotiations.”

Lee also accused the federal and Ontario governments of taking tough stances on proposed U.S. tariffs in order to bolster their own re-election chances.

“I think they’re politicizing it unnecessarily,” he said. “I think they both see political gain for themselves… Both the (Progressive) Conservatives in Ontario and the Liberals federally are putting their partisan political interests ahead of the greater good of the country.”

Charlebois would like to see Canada continue to focus on retaliatory measures that limit harms to Canadians, but have a large political impact in the U.S. by focusing on industries and states that would pressure the Trump administration and Republican politicians. Targeted products could include Florida orange juice and Kentucky bourbon.

“Trade wars are inherently damaging, and while retaliation is necessary to defend Canada’s interests, it should be part of a broader, thoughtful approach,” Charlebois said. “This includes seeking opportunities to reduce reliance on U.S. imports, exploring alternative markets, and investing in industries that bolster Canada’s resilience in the face of such disputes, including food manufacturing.”

With files from The Canadian Press and the Associated Press