Trump's tariffs would crush Canada's economy. Why some industry leaders are calling his bluff

Donald Trump's threat of a 25 per cent tariff on imported goods would have a devastating impact on Canada's economy. But some Canadian workers, industry leaders and economists aren't convinced they'll actually be implemented.

In a social media post Trump made Monday evening, the proposed tariffs were framed as a warning to the U.S.'s primary trading partners that "they will pay a very big price," unless both Canada and Mexico take aggressive action to tighten border security.

But analysts and those working in impacted industries say the mutually beneficial nature of the Canada-U.S. trade relationship, worth more than a trillion dollars, shouldn't be underestimated.

"It's a cost on Canada and Mexican businesses, and American businesses," because the countries have a deeply intertwined supply chain, said Charles St-Arnaud, chief economist at Alberta Central, a trade association for the province's credit unions.

He sees the tariff proposal as "mostly posturing" from the Trump administration ahead of an impending free trade agreement renegotiation. Some experts and politicians have long speculated that an incoming Trump administration would use the threat of tariffs as leverage ahead of the 2026 renewal of the Canada-United States-Mexico-Agreement (CUSMA), a tactic Trump previously used during the original negotiations in 2018.

At this point, St. Arnaud says it's more of a risk. "Nothing has been announced yet," he said. "But if it was to happen, it would [be] a negative for our economy."

The U.S. imported $614.3 billion Cdn worth of goods from Canada in 2022, according to the Office of the United States Trade Representative. More recent figures from the U.S. Census Bureau show that the U.S. imported about $435 billion Cdn of Canadian goods between January and September of this year.

"It would be a really substantial hit to both American consumers and American manufacturers," said Scott Lincicome, vice-president of general economics at the Cato Institute's Steifel Trade Policy Center. While importers are responsible for paying tariffs, they typically pass the cost on to consumers, which means everyday Americans will have to absorb the higher prices from the proposed tariffs.

The list of goods Canada sends south is long: the country sent billions worth of natural gas, autos and car parts, machinery, plastics, gold, electricity, wood, aluminum, iron and steel, and agricultural products to its neighbour last year.

The U.S. is Canada's best customer when it comes to oil and petroleum. Sixty per cent of U.S. crude oil imports were sourced from Canada in 2022, while Mexico was the U.S.'s next most valuable supplier, accounting for just 10 per cent of those imports by comparison.

A tariff regime that disrupts that kind of integration would "inject a lot of uncertainty into the supply chain," said Lincicome.

"The market remains probably the best check on Donald Trump's protectionist impulses. And I think the [U.S.] market's muted reaction to what happened last night is a good sign that not a lot of folks actually believe this is going to happen."

One example of the interrelation described by St-Arnaud is Ontario's auto sector, where car parts might cross the border multiple times. 

The auto industry would be the second most impacted sector after oil and energy. Flavio Volpe, president of the Automotive Parts Manufacturers'​ Association, put it this way: a 10 per cent universal tariff would make it hard for both the Canadian and U.S. car industries to make money. But a 25 per cent tariff?