Tariffs Explained: How New US Trade Policy Could Impact Canada
January 17, 2025 - Tariffs are all over the news these days. Not sure what tariffs are? Wondering how US tariffs could affect Canada? Read on!
What Are Tariffs?
A tariff is a tax on goods and services crossing national borders. There are two types of tariffs. The most common type is an import tariff, which is a tax on goods and services entering a country. An export tariff is a tax on goods and services leaving a country. Tariffs are imposed by governments and paid by either importers (in the case of import tariffs) or exporters (in the case of export tariffs).
Today’s Economic Report
It is widely expected that the US will impose tariffs on imports from Canada after the inauguration next week. Desjardins economists released a report today about Canada’s tariff vulnerability. Here are the key takeaways:
- If the US imposes tariffs, they could apply to all imports or just to specific goods and services.
- The president-elect’s original statements suggested the US would impose tariffs of 10%, but more recent announcements indicated they could be 25%.
- The Canadian industries likely to be most affected by US tariffs include aerospace, primary metals, food and beverage manufacturing, machinery and chemicals. The oil and gas and automotive sectors are more likely to be exempted from tariffs, either immediately or later down the road.
What It Could Mean for Canadians
As discussed above, our economists don’t think all Canadian industries would be targeted by US tariffs. But for those that are, their product would be more expensive for US consumers. That’s because importers would have to pay a surcharge just to get their product into the country. At least some of this cost would be passed along to consumers, which could impact sales of Canadian goods in the US.
For Canadian businesses that struggle to compete in this new environment, they may have to reduce worker hours, cut pay or even consider layoffs.
Tariffs could also lead to higher prices in Canada. North American supply chains are highly integrated. That means parts and components often cross national borders several times before they’re installed in an end product. If tariffs were applied every time a part crossed the border, the price of goods produced and sold in Canada would go up. And if Canada retaliated with tariffs of its own, costs could go up even more.
Bottom Line
Tariffs would be challenging for Canadian businesses, workers and consumers. But as the pandemic proved, Canadian businesses are resilient, innovative and able to adapt to changing environments.
Learn More
For in-depth analysis of the latest economic news, check out the Desjardins Economic Studies page of our website.
And don’t forget to join us for our upcoming webinar on January 30 hosted by Desjardins’s chief economist!
Tariff: A tax imposed by a government on goods and services entering or leaving their country. Import tariffs can result in reduced hours, lower wages and layoffs for workers in the exporting country, and higher prices for consumers in both the importing and exporting countries.