Experts say that a Tariff barrage Tensions between the US and Canada could push both countries into recession and severely disrupt cross-border commerce between the major trading partners.
A Canadian government official said Wednesday he is exploring possible retaliatory tariffs on some American imports after President-elect Donald Trump threatened to impose tariffs on US imports on Monday. 25% tariff on all goods From Canada and Mexico on his first day in office. The officials, who stressed that no final decisions have been made, spoke on condition of anonymity because they were not authorized to speak publicly.
Earlier this week, Mexican President Claudia Sheinbaum also signaled the country may retaliate Against America with its own tariffs on American products. Trump said the increased duties are necessary to stem the flow of undocumented immigrants and illegal drugs from Mexico and Canada.
Economist Michael Davenport said, “Earlier this week U.S. President-elect Donald Trump threatened to impose 25% tariffs on Canada, which would push Canada into recession in 2025, leading to a sharp increase in inflation and the Bank of Canada will be forced to keep rates higher next year.” Oxford Economics said in a report on Thursday.
According to the investment research firm, inflation in Canada will top 7% by mid-2025, while unemployment will reach 8% by the end of the year. The country's auto, energy and heavy manufacturing industries, which depend on exports to the US, will be hit the most, he said, adding that these sectors are also dependent on components from US suppliers.
Canada shirked its own duties when Trump imposed tariffs on the country's steel and aluminum exports to the U.S. during his first term in the White House. Canada targeted American products including whiskey and yogurt, most of which came from a plant in Wisconsin, the home state of then-House Speaker Paul Ryan.
Canadian officials say it is unfair to integrate Canada with Mexico, but say they are ready to make new investments in border security and will work with the Trump administration to reduce the numbers from Canada. Canadians are also concerned about the influx of migrants if Trump follows through on his plan for mass deportations.
America will also feel the pain
Trump and his allies, including his pick for Treasury Secretary, Scott Besant, Argued that the tariffs imposed during his first term furthered American economic objectives did not promote inflation,
But the US would probably not suffer any losses in a full-scale trade war with Canada. According to Oxford, sweeping tariffs on US products are likely to lead to a “shallow” recession in the US and a breakdown in political relations between the allies.
Although the US is the world's leading oil producer, Canada supplies about 20% of the oil used in the states. As a result, U.S. gas prices could rise 30 to 40 cents a gallon, and potentially as much as 70 cents, soon after Trump imposes tariffs on Canada, Patrick de Haan, head of petroleum analysis at GasBuddy, told CBS MoneyWatch.
With so much going on, the incoming Trump administration is more likely to impose limited tariffs on Canadian products, such as steel, lumber and agricultural products like dairy.
“Despite Trump's latest threat of sweeping tariffs, we still think it is unlikely that the Trump administration will impose tariffs on Canadian auto and energy exports, which account for about 40% of total Canadian exports to the U.S.,” Davenport said. “The North American energy sector and auto supply chains are highly integrated at the US-Canada border and any tariffs on these goods would also have a significant negative impact on the US economy.”
Contributed to this report.