Canada faces crucial economic challenge due to Trump’s tariffs

Wednesday 05 March 2025 - 11:06

By: Zahouani Ilham

Canada faces crucial economic challenge due to Trump’s tariffs

The Trump administration has followed through on its threat to impose tariffs on Canadian goods. As of Tuesday, a 25% tariff on most Canadian imports (except energy, which faces a 10% tariff) has been enacted. In addition, Mexico and China have also experienced increased tariffs, with Mexico facing a 25% tariff, while China’s tariffs are now 20%.

Economists from the Royal Bank of Canada, Francis Donald and Cynthia Leach, have termed this move the largest trade shock Canada has faced in nearly a century. Vina Nadjibulla, a senior strategist at the Asia Pacific Foundation of Canada, emphasized that these tariffs represent an "existential fight" for the country.

The retaliation from Canada has been swift, with the government imposing a 25% tariff on US imports worth 30 billion Canadian dollars ($21bn). Further measures are under consideration, including tariffs on up to $87bn worth of US goods. Mexico has promised to retaliate, though their actions have been delayed until Sunday.

China has also announced tariffs on certain US imports and filed a complaint with the World Trade Organization. Economists warn that this tariff war could have significant long-term effects, including inflation, price hikes, and economic instability. Even if the blanket tariffs are revoked, more specific tariffs are likely to continue, further complicating global trade.

While the future of the tariff war remains uncertain, experts agree that negotiations are possible, though the data supporting Trump’s reasons for the tariffs, such as undocumented immigration and drug flow, are contested. In fact, recent reports indicate that the flow of illegal drugs and weapons into Canada has increased, challenging the basis of the tariffs.

The political and economic future of the Canada-US relationship is now in question. Some experts predict that Trump’s tariffs could lead to the loss of 1.5 million jobs in Canada and may even send the economy into recession. Canadian Prime Minister Justin Trudeau has warned that Trump's actions could destabilize Canada’s economy and potentially pave the way for annexation.

This conflict also raises critical questions about the broader implications for foreign policy, defense, and security between Canada and the US. With such a profound shift in the relationship, Canada must reconsider its national resilience and its position in global trade.

Mexico, too, faces challenges, as some Canadian leaders have proposed cutting Mexico out of future trade negotiations. This approach could further align Canada with Trump’s divide-and-conquer strategy, undermining regional solidarity.

Despite the turmoil, US Commerce Secretary Howard Lutnick suggested that a middle ground could be reached, but experts believe that the damage to the Canada-US trade relationship is already significant and may take years to repair. The ultimate cost of this trade war could be high, but a truce may still be possible.