Recently President-elect Donald Trump has threatened to impose a 25% tariff on all goods imported from Canada, effective January 20. The announcement, made via his Truth Social platform, cites the need to address illegal migration and drug trafficking, particularly fentanyl, as the primary motivation, Al Jazeera reports.
Trump’s statement accused both Canada and Mexico of failing to adequately stem the flow of these issues into the United States, declaring that “it is time for them to pay a very big price” until the problems are resolved. This stance comes just weeks before his scheduled inauguration, promising a dramatic shift in US-Canada relations.
Canada in Disarray
The threat has thrown Canadian politics into turmoil. Finance Minister Chrystia Freeland resigned last week, reportedly due to disagreements with Prime Minister Justin Trudeau on how to approach the looming trade conflict. Freeland warned of a “coming trade war” and emphasized the need to take Trump’s threats seriously.
Prime Minister Trudeau, for his part, has stressed the importance of diplomacy and has reached out to President-elect Trump directly, including a visit to Mar-a-Lago for discussions. However, his government is facing mounting pressure from opposition parties, and the business community, to take more decisive action.
Deeply Intertwined Economy
The US and Canada share one of the most integrated economic relationships in the world, with approximately $2.7 billion (CAD 3.6 billion) in goods and services traded daily. Many supply chains are interwoven, with companies in both countries co-investing in production. Canada is the largest foreign supplier of energy to the United States, particularly crude oil, and also exports vehicles, forestry products, and other key resources.
According to US Census Bureau data, US exports to Canada totaled over $293 billion, while imports reached nearly $344 billion in 2024 alone, making Canada the United States’ second-largest trading partner behind Mexico. The two countries are also signatories to the US-Mexico-Canada Agreement (USMCA), a trilateral trade pact that was completed during Trump’s first term.
Economists Predict Dire Consequences
Economists are warning that Trump’s proposed tariffs would have severe economic consequences for both nations. Oxford Economics, in a recent report, predicts a full-scale trade war, including retaliatory measures by Canada, would likely push Canada into a recession by 2025. The analysis projects significant declines in GDP, a surge in inflation to over 7% and job losses pushing unemployment to nearly 8% by the end of 2025.
The US, while also facing economic headwinds, is expected to experience a “shallow recession,” with disruptions to supply chains impacting various sectors. A study by the Canadian Chamber of Commerce points out that Canada is the largest export market for 34 US states, meaning that American manufacturers and local economies are also vulnerable.
Will Trump Follow Through?
Despite the severity of his threats, some experts believe that Trump’s strategy is primarily aimed at extracting concessions from Canada on issues like immigration and trade, rather than imposing a full-scale tariff. They suggest that more targeted tariffs on specific sectors, such as steel, aluminum, and lumber, are more likely.
However, the uncertainty surrounding Trump’s actions has left both the Canadian government and businesses scrambling to prepare for a potential trade war. While Trudeau has not yet announced concrete retaliatory measures, discussions are underway regarding potential export taxes and tariffs on US goods.
Political Fallout
Conservative opposition leader Pierre Poilievre is using the tariff threat to attack Trudeau, demanding his resignation. He has, however, been criticized for offering limited details on how his party would respond if they were in power, though he did say “counter-tariffs” would be considered.
