Emerging Impacts and Responses to the New U.S. Administration: A New Era for Canada

As President Trump's tariff threats loom over the world's longest undefended border, Canada's $2 trillion economy stands at a precipice. The 25% tariffs—described by economists as the most significant bilateral trade disruption since the Great Depression—threaten to unravel decades of integrated supply chains, potentially shrinking Canada's GDP by $78 billion and costing every Canadian nearly $2,000 annually. While confusion reigns over implementation dates that shift between March 4th and April 2nd, one reality remains clear: the consequences for Canada's automotive, energy, steel, and agricultural sectors could be seismic. As Canadian officials scramble to negotiate exemptions and craft retaliatory measures, the crisis has produced an unexpected silver lining—a newfound national unity in the face of external economic pressure.



Trade Dependency

Canada's $2 trillion economy is significantly more dependent on international trade than the United States. While trade accounts for approximately 40% of Canada's GDP, it represents only about 15% of the US economy. This stark difference highlights Canada's greater vulnerability to disruptions in global trade patterns.

Further compounding this vulnerability is Canada's concentrated trade relationship with a single partner. The vast majority of Canadian exports and imports flow across the US-Canada border, creating both economic dependence and strategic vulnerability through reliance on a single dominant trading partner.



This comprehensive analysis explores what's at stake for Canada's economy and explores the emerging impacts and responses to the Trump Administration’s policies and actions.

What's the latest on the US Tariffs?

The Reciprocal Tariff Act of 1934, which was a response to the Smoot-Hawley Tariff Act of 1930, allows the US president to negotiate tariff increases and reductions with other countries by as much as 50%.



On Wednesday, February 26, President Trump announced another update on the Mexico-Canada tariffs, apparently pausing new tariffs until at least April 2. However, other statements from the Administration said tariffs on Mexico and Canada are still expected to take effect on March 4, indicating Trump is still reviewing the progress. Confusion remains with Trump stating, “I have to tell you that, you know, on April 2, I was going to do it on April 1, But I’m a little superstitious, I made it April 2, the tariffs go on. Not all of them but a lot of them.”  Yesterday, he announced that tariffs will go ahead as planned on March 4, along with additional tariffs on China. With the initial comments on the pause to April 2, Canadian and Mexican currency moved upwards in response.

Canadian Innovation Minister Francois-Phillipe Champagne advised Canada would wait for signed executive orders. It stated, “Our mission is still to avoid the tariffs, extend the suspension if we need to….there will be a targeted, strategic but a firm response” should tariffs be imposed. Mexico’s Economy Minister Marcelo Ebrard will meet on Thursday with USTR Jamieson Greer and Commerce Secretary Howard Lutnick on Friday. 

Newly confirmed USTR Jamieson Greer has stated that the USMCA is at the top of his list. He is anxious to renegotiate the agreement to ensure that other countries, primarily China, do not use Mexico as an interim stop to avoid tariffs on Chinese products.

Trump continues to discuss early April for imposing reciprocal tariffs and has stated, “We have made decisions, and we’ll be announcing it very soon, and it’ll be 25%, generally speaking, and that’ll be on cars, and all of these things”.  However, this is confusing, as the American First Trade Policy Memorandum initiates investigations of trade practices, a public comment period, and a report due on April 1. The report, in theory, would result in recommendations and then potential actions.

Anticipated Impact of US Tariffs on Canada: Sectoral Analysis and Economic Consequences

The United States' imposition of 25% tariffs on Canadian goods, effective February 4, 2025, represents the most significant bilateral trade disruption since the Smoot-Hawley tariffs of the 1930s. These measures, coupled with Canada’s retaliatory tariffs on $155 billion of U.S. imports, threaten to reshape North American supply chains, destabilize key industries, and trigger inflationary pressures across both economies.



The Impact of US Tariffs on Canada

GDP Contraction and Recession Risks

Due to its deep integration with U.S. markets, the Canadian economy faces immediate contraction. RBC Economics projects that sustained tariffs could reduce Canada’s GDP by 2.6% (approximately CAD $78 billion), equivalent to a $1,900 annual loss per capita.

The Bank of Canada’s modelling aligns with these findings, forecasting an 8.5% decline in exports and a 12% drop in business investment within the first year of tariff implementation. Combined with weakened consumer spending (projected to fall by over 2%), these factors create conditions for a “modest recession” by mid-2025 if tariffs persist.

Inflation and Currency Depreciation

Retaliatory tariffs on 13% of Canada’s consumer price index (CPI) basket, primarily U.S.-imported vehicles, appliances, and food, will exacerbate inflationary pressures. The Canadian dollar’s depreciation against the USD (estimated at 10–15%) compounds this effect by raising costs for all imported goods. While the Bank of Canada expects a temporary inflation spike to 3–3.5%, prolonged supply chain disruptions could entrench higher price levels, particularly in sectors like automotive and agriculture.

Employment and Regional Vulnerabilities

Labour markets in export-dependent regions face acute risks. Ontario and Quebec, which account for 68% of Canada’s manufacturing GDP, could lose 30,000–100,000 jobs in steel, aluminum, and automotive sectors alone. Western Canada’s energy sector, already grappling with a 10% tariff on crude oil exports, may see further layoffs as U.S. refiners seek alternative suppliers.

Sector-Specific Impacts of the U.S. Tariffs

1. Automotive Industry: A Cross-Border Crisis

Canada’s automotive sector, responsible for 93% of vehicle exports to the U.S., faces existential threats. Integrated supply chains mean components cross the border 7–8 times before final assembly, amplifying tariff costs at each stage. For Toyota Canada, producing 500,000 vehicles annually, a 25% tariff could add $5 billion in annual costs—equivalent to 40% of its 2024 revenue.

The ripple effects extend beyond assembly plants:

• Parts Manufacturers: Canadian firms supply 20% of U.S. automotive components. Tariffs jeopardize $18 billion in annual parts exports, risking 22,000 jobs in Ontario’s “Auto Alley”.
• Consumer Prices: Cross-border price parity for vehicles will collapse. A CAD $35,000 crossover SUV could cost $43,750 in Canada post-tariff, depressing sales and forcing production cuts.

2. Energy Sector: Crude Oil Under Siege

Despite a lower 10% tariff, Canada’s energy exports face severe headwinds:

• Crude Oil: With 90% of 2023’s $143 billion oil exports destined for U.S. refineries, tariffs could displace 600,000 barrels per day (bpd) to Asia—a logistical challenge given pipeline constraints.
• Refined Products: Alberta’s refineries, which process 80% of Canadian crude, rely on U.S.-made equipment. Retaliatory tariffs on machinery imports could delay upgrades, reducing output by 15%.

3. Steel and Aluminum: Strategic Industries at Risk

The 25% U.S. tariff targets Canada’s $35 billion steel and aluminum trade:

• Steel: Canadian exports, primarily from Hamilton and Sault Ste. Marie could fall 38%—mirroring the 2018 tariff impact. This jeopardizes 16,000 direct jobs and critical infrastructure projects reliant on domestic steel.
• Aluminum: Quebec’s hydro-powered smelters, which produce 85% of U.S. aluminum imports, face demand destruction. The 2018 tariffs caused an 18.6% monthly export decline, and current measures could idle 40% of capacity.

4. Agriculture and Agri-Food: A Double-Edged Sword

Canada’s agricultural sector, deeply intertwined with U.S. markets, confronts bidirectional risks:

• Exports: The U.S. buys 86% of Canadian canola oil and 58% of beef exports. A 25% tariff could slash canola sales by $1.5 billion annually, forcing farmers to divert crops to lower-margin biofuels.
• Imports: The U.S. supplies 70% of Canada’s fertilizer and 45% of its fresh produce. Retaliatory tariffs could raise food prices by 6–8%, disproportionately affecting low-income households.

5. Manufacturing and Consumer Goods

Beyond automotive, multiple manufacturing subsectors face disruption:

• Aerospace: Bombardier and CAE rely on U.S.-sourced avionics (60% of inputs). Tariffs could delay the Global 8000 jet program by 18 months, forfeiting $2.7 billion in orders.
• Chemicals: Tariffs on ethylene (70% of which is imported from Texas) may raise PVC prices by 30%, stalling $1.2 billion in Ontario construction projects.

Mitigation Efforts and Policy Response

Federal Countermeasures

Canada’s three-pronged response aims to cushion impacts:

1. Remission Process: Businesses can request tariff exemptions for inputs lacking domestic alternatives (e.g., specialized machinery). This could save manufacturers $3.7 billion annually.
2. Sectoral Aid: A $4.2 billion fund targets agriculture ($1.3 billion) and automotive ($2.1 billion) for supply chain diversification and automation.
3. Trade Diversification: Accelerated implementation of CETA and CPTPP aims to shift 15% of exports to EU and Asian markets by 2026.

Provincial Initiatives

• Ontario: A $500 million loan guarantee program, leveraging the Critical Minerals Strategy, helps auto suppliers retool for EV components.
• Alberta: The Energy Diversification Act subsidizes rail shipments to Asian markets, aiming to redirect 200,000 bpd from U.S. refiners.

Strategic Response to the US Tariffs

Have you fully assessed the impact of the tariffs, both negative and positive, both short term and long-term? Have you formed a Taskforce to counteract the impact of the tariffs? Do you have a Strategic Response Framework in place to mitigate the impact and drive competitive differentiation?

If you are looking for guidance, refer to our Strategic Response Framework.



The National Unity Effect

The one silver lining emerging from the U.S. Tariffs is greater national unity. Canadian premiers are now far more willing to work together to ensure the continued prosperity of their provinces.



In a recent interview on the Prof G Markets podcast, Mike Moffatt, Canadian economist and professor of Business, Economics, and Public Policy at the University of Ottawa, said, "We are less divided than we have been in probably a decade here. The Trump administration has kind of brought us together and created a bit of a common enemy."

Watch/listen to the full interview with Mike Moffatt on the Prof G Markets podcast.

Conclusion: Pathways Through the Trade Storm

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The U.S. tariffs strike at the heart of Canada’s export-led growth model, exposing structural dependencies that will take years to unwind. While immediate GDP contraction appears inevitable, strategic pivots towards the European and Indo-Pacific markets and domestic value-added processing could mitigate long-term damage. Success hinges on coordinated federal-provincial investments in supply chain resilience, workforce retraining, and trade infrastructure. Without rapid multilateral dispute resolution, however, Canada’s economy risks a prolonged period of stagflationary pressures, with lasting consequences for living standards and industrial competitiveness.



The coming months will test Canada’s ability to balance retaliatory resolve with diplomatic pragmatism. As Minister LeBlanc noted, “Our focus remains removing these tariffs, not escalating tensions”. Achieving this outcome while safeguarding key industries will define Canada’s economic trajectory into the 2030s.

But there is a path forward. Our Strategic Response Framework provides Canadian companies with a comprehensive blueprint for not just surviving but thriving amid this trade uncertainty. By following our tested methodology for supply chain resilience, market diversification, and strategic investment, businesses can transform this challenge into a competitive advantage. 

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Author's Bio:

Maxim Atanassov is a Calgary-based business transformation specialist with over two decades of strategic leadership experience across multiple industries. Maxim leverages his financial acumen and technological expertise to drive organizational change and innovation. A serial entrepreneur, tech founder, and investor, he excels at transforming operations and building new capabilities that consistently achieve top-decile performance. Maxim's approach combines AI implementation with strategic governance, helping businesses navigate technological disruption while managing risk. Clients praise his ability to drive clarity in ideation processes and implement solutions generating exponential growth.