How seriously should we take Trump's tariff threat, and how could it affect Canadians?
Proposed U.S. tariffs on Canadian products described as 'catastrophic'
Donald Trump has threatened to impose a 25 per cent tariff on all products entering the country from Canada and Mexico.
The U.S. president-elect made the assertion Monday on his social media platform Truth Social, saying the tariff will be one of his first executive orders when he takes office Jan. 20 as part of his effort to crack down on illegal immigration and drugs.
The news left politicians scrambling, sent the loonie diving, and had economists warning of a catastrophic impact, saying the move could fuel inflation and have a critical effect on supply chains.
But how could all this affect you? Is it a serious threat? And while we're asking ... what even is a tariff? Listen, no judgment here. Grab a coffee.
What's a tariff?
Tariffs are a tax on imports, typically charged as a percentage of the price a buyer pays a foreign seller. In the United States, tariffs are collected by Customs and Border Protection agents at 328 ports of entry across the country.
For example, the tariff on passenger cars is 2.5 per cent; on golf shoes, it is six per cent.
Tariffs can be lower for countries that have trade agreements with the United States. Most goods can move between the United States, Mexico and Canada tariff-free because of the United States-Mexico-Canada Agreement that came into effect during Trump's first term in office and replaced the North American Free Trade Agreement.
Who pays them?
Trump insists that tariffs are paid for by foreign countries. In fact, it is importers — American companies — that pay tariffs, and the money goes to the U.S. Treasury.
However, companies typically pass the increased costs to their customers in the form of higher prices. That's why economists say consumers usually end up footing the bill for tariffs.
Tariffs can hurt foreign countries by making their products pricier and harder to sell abroad.
How could the hike affect Canada's economy?
The U.S. is Canada's largest trading partner. About 60 to 70 per cent of the totality of Canada's trade is with the United States, said Ian Lee, associate professor at the Sprott School of Business at Carleton University in Ottawa
Lee says Trump's proposed U.S. tariffs on Canadian products would be "catastrophic" to Canada's economy and currency. Two-thirds of Canada's GDP is dependent on trade, he told CBC News Network Monday evening.
According to Canada's State of Trade report for 2024, exports alone support nearly 3.3 million Canadian jobs — about one in six. Just under two million jobs in Canada are dependent on exports to the U.S., Lee explained.
"The consequences are going to be devastating for Canada," Lee said. "There's no way of sugar-coating this, this is just completely bad news."
The Bank of Canada said Tuesday that if Trump follows through on the threat, it would impact both economies. Economists say it could fuel inflation, suppress growth and distort the trajectory of interest rates in Canada.
What sectors would be most affected?
Trump's tariff threats are broad and include oil imports, Reuters reports. Canada and Mexico are the top sources of U.S. crude oil imports, together accounting for nearly a quarter of the oil that U.S. refineries process into fuels like gasoline, diesel and heating oil, according to data from the Department of Energy.
According to the U.S. Census Bureau, oil and gas were the top U.S. imports from Canada in 2023, followed by transportation equipment.
Flavio Volpe, president of the Automotive Parts Manufacturers' Association, told CBC News Network Tuesday that a 25 per cent tariff would be so catastrophic that it would make being in business "pointless."
He said supply chains in the North American auto industry are so integrated that by the time a vehicle gets in the hands of the customer in Canada or the U.S., the parts have been across the border seven or eight times.
"There is no border in automotive."
Will Canada fight it?
Prime Minister Justin Trudeau and the country's premiers will hold an emergency meeting on Wednesday to discuss the threat of the steep new U.S. tariffs and devise what he called a "Team Canada" response.
On Tuesday, Trudeau said he had a good call with the U.S. president-elect Monday night, noting the effective connections between the two countries.
Trudeau also spoke with Ontario Premier Doug Ford, who chairs the premiers' association known as the Council of the Federation, as well as with other premiers last night.
Ford had written to Trudeau requesting an urgent meeting to discuss a united approach to everything from trade and border security to energy, defence and cross-border supply chains.
On Tuesday, Ford said the threat feels "like a family member stabbing you right in the heart." He added Canada would have no choice but to retaliate if the incoming Trump administration goes through with the tariff.
Meanwhile, the Canadian Chamber of Commerce said Canada needs to urgently adapt its approach to trade talks with the U.S. The chamber's president and CEO Candace Laing said in a Tuesday statement that "being America's 'nice neighbour' won't get us anywhere."
Should we take the threat seriously?
This isn't the first time Trump has made late-night declarations that stirred up a lot of reaction.
Canadian Innovation Minister François-Philippe Champagne said Monday that they take Trump's threat seriously and will begin discussions on topics such as the effect it will have on the U.S. economy and, in particular, the energy sector.
Trump isn't president for another two months "so we still have a number of weeks to engage," he said.
"Bottom line, we will do what we always do and stand up for Canada and stand up for the workers."
Gordon Giffin, the former U.S. ambassador to Canada, told CBC News Network Tuesday that it's Trump's style to make bold declarations at night on social media.
"My instinct is — based on no facts, obviously — is that this is intended to cause action and activity in the two-month interim between now and the time that he takes office," Giffin said.
In Windsor, Ont., where the economy is deeply tied to cross-border trade and the automotive industry, Mayor Drew Dilkens called for a strong Canadian response to what is "likely a negotiating tactic" by Trump.
"There's lots of jobs at stake if this isn't done correctly."
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With files from the Associated Press, The Canadian Press and Reuters