U.S. President Donald Trump has announced that new tariffs on Canada and Mexico will be implemented next week, raising alarm bells across North America. The proposed tariffs, which could reach 25%, are seen as a major threat to millions of jobs, especially in sectors heavily reliant on trade between the three countries.
Economists have warned that these tariffs represent the “most significant trade shock” Canada has faced since the 1930s, with job losses expected to ripple through various industries. Erik Johnson, an economist at BMO Capital Markets, highlighted that many sectors in Canada have substantial employment linked directly or indirectly to trade with the U.S. “A lot of jobs are tied to trade with the United States,” he told Global News, underscoring the potential fallout from this trade disruption.
Tariffs Set to Hit March 4, 2025
Trump has repeatedly stated that these tariffs are set to take effect on March 4, 2025, heightening concerns for workers and businesses in both Canada and Mexico. If imposed, these tariffs are expected to cause widespread economic damage, with fears mounting that they could push Canada into a recession.
This situation is far more severe than the trade disruptions of 2018, according to a report from RBC’s chief economist Frances Donald and assistant chief economist Nathan Janzen. They noted that the tariffs imposed in 2018 saw U.S. import tariffs rise from 1.5% to about 3%. However, with the new policy, the U.S. average tariff rate could rise to nearly 11%, the highest since the 1940s.
A Recession Unlike the Pandemic’s Economic Downturn
Bank of Canada governor Tiff Macklem addressed the potential consequences of the tariffs during a speech to the Mississauga Board of Trade and the Oakville Chamber of Commerce. He warned that, unlike the steep recession caused by the COVID-19 pandemic, a prolonged period of tariffs would not be followed by a quick recovery. “In the pandemic, we had a steep recession followed by a rapid recovery as the economy reopened,” Macklem explained. “This time, if tariffs are long-lasting and broad-based, there won’t be a bounceback.”
While some growth could return over time, Macklem stressed that the damage would be enduring. The Canadian Chamber of Commerce estimates that approximately 2.3 million Canadians are employed in jobs directly tied to U.S. exports, while 1.4 million Americans rely on jobs linked to Canadian exports. These positions are at risk from the impending tariffs.
Vulnerable Sectors Facing Devastation
While economists agree that the tariffs will hurt the Canadian economy across the board, certain sectors are particularly vulnerable:
- Auto Industry: The automotive sector is one of the most exposed industries to the U.S.-Canada trade relationship. If the tariffs go into effect, it could lead to production halts, massive job losses, and higher prices for American consumers. Flavio Volpe, president of the Automotive Parts Manufacturers Association, warned that the entire North American auto industry might shut down within days of the tariffs’ imposition.
- Energy Sector: The energy sector, employing nearly 276,000 people directly and up to 900,000 indirectly, stands to face significant job losses. Canada’s energy exports, particularly oil and gas, are critical to the economy, and tariffs could drastically reduce trade volumes.
- Agriculture and Consumer Goods: The agriculture and consumer goods sectors, which are vital to Canada’s manufacturing GDP and employment, are also at risk. The Canadian construction sector could face higher costs due to retaliatory tariffs on steel and aluminum, potentially stalling major infrastructure projects and leading to further job cuts.
According to Bank of Canada estimates, an export drop of 8.5% in the first year following the implementation of broad-based tariffs is expected, with Canadian companies likely responding by cutting production and laying off workers.
Impact on Regional Economies
The economic fallout will not be uniform across Canada. Provinces that are heavily focused on manufacturing—such as Ontario and Quebec—will bear the brunt of job losses in the auto, aerospace, and metals industries. In energy-rich provinces like Alberta, Saskatchewan, and Newfoundland and Labrador, the energy sector will be hit hardest by tariffs.
A recent RBC report noted that Canada might avoid a full-blown recession if the tariffs are only in place for a short period. However, if the tariffs extend over several months, the country’s recessionary risks will increase substantially.
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Donald Trump Hints at 25% Tariffs on Canadian Imports Starting February 1
Donald Trump Hints at 25% Tariffs on Canadian Imports Starting February 1
Potential Silver Lining: A Weaker Canadian Dollar
While the overall impact of the tariffs is grim, there could be some relief from the depreciation of the Canadian dollar. A weaker loonie could help Canadian exporters by making their goods cheaper for foreign buyers, slightly offsetting the negative effects of the tariffs.
However, Tu Nguyen, an economist at RSM Canada, cautioned that the uncertainty surrounding trade policy could itself hurt the economy. “Tariffs are inflationary and impede growth,” she said, noting that U.S. consumers are already scaling back on spending, further reducing demand for Canadian exports.
Uncertainty Still Looms
Despite the grim outlook, there is still hope that the tariffs might be avoided. As Johnson pointed out, it’s important to remember that these measures could still be part of ongoing negotiations aimed at securing a better trade deal. “It’ll be important to see if this is still very much focused on extracting some sort of additional deal,” he said.
In the meantime, Canadians and businesses alike are left to brace for the potential economic storm that these tariffs could bring, with millions of jobs hanging in the balance.
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