US president-elect Donald Trump’s pledge to impose a 25% tariff on all imports would have a devastating impact on Canadians and many economists are bracing for the worst, saying it could “destroy prosperity on both sides of the border.”
“These tariffs would be bad news not just for Canadians, but also for the many American businesses and workers who rely on Canadian materials to produce their goods,” vice president of communications for the Montreal Economic Institute Renaud Brossard told True North.
Trump campaigned on an across-the-board 10% tariff on all imports into the US, however, he’s upped the ante since winning the election.
According to a report published by the Canadian Chamber of Commerce published last month, such a measure would cost the Canadian economy between 0.9% and 1% of the country’s GDP.
This would result in a loss of $1,100 in real annual income for every Canadian and American.
“If enacted, Trump’s tariff would have a significant negative impact, not only for Canada’s economy, but also for the U.S. economy,” said Trevor Tombe, University of Calgary professor and author of the report.
“There’s an opportunity to learn from long-forgotten history, here. It turns out that the 10% tariff recently proposed by Trump has some echoes of a tariff that was enacted by President Nixon back in 1971. That policy—which was much narrower than Trump’s recent proposal—was a disaster and was quickly reversed.”
Brossard said, “that’s why tariffs are often referred to as a negative-sum game: they destroy prosperity on both sides of the border.”
While the importance of a healthy trade relationship with the U.S. is generally understood by Canadians, many Americans may need to realize how valuable Canada is as a supply chain partner in return, noted Tombe.
Canada serves as the top export destination for 34 U.S. states and is a primary destination for thousands of US companies and consumers alike.
“Several U.S. state economies are surprisingly dependent on Canadian trade. In Montana, trade with Canada accounts for 16% of the state economy, in Michigan it’s 14% and in Illinois it’s 10%. Even as far away as Texas, trade with Canada still accounts for 4% of the state economy,” said Tombe.
Meanwhile, several provincial economies are also heavily dependent on trade with the U.S., particularly New Brunswick at 62%, Manitoba and Alberta at 42%, Ontario at 41%, and Quebec at 23%.
“When you dig into the data, you immediately see the high degree of integration between the two economies, and how much they rely on each other to make things. That’s why maintaining efficient supply chains ultimately makes both countries more competitive and increases economic security and resilience to global shocks,” added Tombe.
“With continued partnership, and by rejecting protectionism, Canada and the U.S. can ensure their shared economic security and prosperity well beyond the upcoming election.”
Statistics Canada estimated that total trade between the two countries amounted to $960.8 billion in 2022, with Canadian energy products accounting for 33.5% of the $598 billion worth of exports to the U.S.
President of the Canadian Federation of Independent Business Dan Kelly warned that the looming uncertainty is destined to level a heavy blow against the economic recovery of small businesses.
“Small and medium-sized businesses account for approximately 40 per cent of exports to the U.S.” said Kelly in a statement.
“Canada cannot afford to dismiss this as an idle threat or initial positioning — we need to take this seriously and present, once again, a united front in responding to this challenge.”