With U.S. president Donald Trump wielding tariffs as a tool to redefine American power and position on the world stage, there remains much uncertainty over what tariffs are and who pays them. Do they achieve stated goals and what has history shown us about their long-term use?
What started as an attempt by the Trump administration to bully Canada and Mexico with a new general tariff grew to include China and now the rest of the world.
With tariffs promising to be the lead car on the roller coaster ride of the coming months let’s take a look at what the latest tariffs might mean:
TARIFFS ARE TAXES
Tariffs are a tax imposed on goods coming into a country and are also commonly called customs duties. They are used to make domestically produced goods more attractive to consumers than imported foreign products or to raise revenue for the government.
HOW DO TARIFFS WORK?
Tariffs are usually a percentage of the value of the goods being imported, or a fixed cost. There can also be a sliding scale of tariff rates once a certain volume of foreign product imports has been reached.
Tariffs are paid by the domestic importer of the foreign goods with those revenues handed over to the federal government. The increased costs of the goods are generally passed on by the importer to businesses and consumers using the goods.
WHAT IS CANADA FACING?
Trump is threatening to impose a general 25 per cent tariff on all imported Canadian and Mexican goods. There is an exception for oil and energy products, which will be tariffed at 10 per cent rate.
China is currently paying a 10 per cent general tariff on its exports to the U.S.
In addition to the 25 per cent general tariff, the Americans are threatening to impose a 25 per cent steel and aluminum tariff on all countries. That would potentially boost the tariff on Canadian steel and aluminum exports to 50 per cent.
WHEN DO NEW TARIFFS HIT CANADA?
The Americans have set a March 4 deadline for the 25 per cent general tariff on all goods and 10 per cent on oil and energy.
The steel and aluminum tariffs have a March 12 implementation deadline.
WHY IS U.S. THREATENING TARIFFS?
The original reason given for the general 25 per cent tariff was to get the Canadian federal government to beef up security at the border to reduce illegal immigration and the flow of fentanyl into the U.S.
Trump would also like to see Canada meet its NATO commitment of spending two per cent or more of its GDP on the military.
The steel and aluminum tariffs are intended to protect the American steel and aluminum industries and encourage more reshoring of such manufacturing to the U.S.
What measurements of Canadian progress the Americans have for not imposing tariffs at the given deadlines remains unclear. Trump has increasingly shifted his grievances more to economic issues.
WHAT IS ACTUAL CANADA-U.S. TRADE BALANCE?
Despite Trump continues to claim the U.S. has a US$200-billion trade deficit with Canada. But according to the U.S. Census Bureau’s figures on foreign trade, the U.S. had an actual trade deficit with Canada of US$63.3 billion (C$91.1 billion) in 2024.
Even that deficit, however, includes the purchase of Canadian oil, natural gas and power because the U.S. can’t produce enough energy to meet its own needs. Without those energy purchases, the U.S. actually enjoyed a $60 billion surplus with Canada.
According to the most up-to-date U.S. Department of Commerce data, Canadian businesses and individuals invested US$671.6 billion into the U.S. in 2023 compared to US$451.6 billion flowing into Canada — an American surplus of $220 billion in investments.
CANADA IMPACT FROM TRUMP TARIFFS
In 2018, Trump placed a 25 per cent tariff on Canadian steel and a 10 per cent tariff on aluminum that lasted for about a year.
The tariffs resulted in a 37.8 per cent drop in demand for Canadian steel and an 18.6 per cent drop for aluminum, according to Statistics Canada.
Should a general 25 per cent tariff be imposed on all Canadian goods, the job losses would be significant as about 76 per cent of this nation’s exports go to the U.S.
Ontario Premier Doug Ford has said as many as 500,000 jobs could be impacted in Ontario alone and the Bank of Canada estimates such tariffs would shave two per cent off Canada’s GDP in each of the first two years they were in place.
WHO WILL BE HIT HARDEST LOCALLY?
The Canadian Chamber of Commerce rates Windsor as one of the three hardest-hit Canadian cities from U.S. tariffs.
The Windsor area’s manufacturing and agricultural sectors are particularly vulnerable due to their deep integration into the American auto and agri-food supply chains.
Over 80 per cent of Essex County’s important agricultural production is shipped stateside and the numbers are even higher for the automotive/manufacturing sector.
Construction will also be significantly impacted by the rising cost of materials, such as steel, aluminum and other manufactured products.
Consumer costs for food, appliances and goods that can be produced domestically will also see inflation.
TARIFFS WILL ALSO HURT U.S.
While Canadians will feel the pain first and hardest, the discomfort will be eventually shared with American consumers and businesses in the form of cost increases and job losses.
Canada is the largest trading partner for 34 U.S. states, leaving them vulnerable to the cascading effects of tariffs through their supply chains and a loss of market share in Canada.
The U.S. National Association of Home Builders estimates tariffs will result in additional costs of US$4.3 billion to US $5.7 billion to the housing industry.
Auto analysts estimate the cost of vehicles could rise between $3,000 and $9,000 depending on the model.
With no capacity to increase aluminum production, and tariffs applying to all countries, U.S. manufacturers will have to buy more expensive aluminum.
The U.S. International Trade Association reported Canada supplied about 60 per cent of U.S. aluminum in 2024. The Canadian industry is considered so important to the Americans that it is actually defined in U.S. law as being part of the U.S. industrial base for national security reasons.
The U.S. steel industry has some flexibility, but its higher-cost production will also inflate prices in downstream industries using its more expensive products.
The Canadian Association of Petroleum Producers reports Canada supplies 60 per cent of U.S. oil imports. A tariff of 10 to 25 per cent on Canadian oil is forecast to increase costs at the gas pump for Americans by 30 to 70 cents per gallon.
The U.S. Fertilizer Institute said Canada supplies about 95 per cent of America’s potash and is calling for a tariff exemption to protect U.S. farmers.
HOW QUICKLY WILL IMPACTS BE FELT?
It will depend upon the industry and the inventory supplies.
For example, the tariffs won’t apply to any vehicles already part of an automaker’s inventory. That means more popular vehicles that are in shorter supply will see their prices rise first due to tariffs.
To avoid tariffs, companies on either side of the border have been stockpiling steel, materials and even shifting equipment around. In the U.S., distributors of spirits have been stockpiling Canadian and Mexican-made booze.
However, inventory stocking is something that will only insulate consumers for a matter of weeks or months.
WHAT WAS IMPACT OF 2018 TRUMP TARIFFS?
In 2018, Trump imposed a 25 per cent tariff on steel and a 10 per cent tariff on aluminum for about a year with the same motivation for rebuilding those domestic industries.
While there was an initial uptick in sales in 2018, neither sector has been able to maintain any growth momentum in the past seven years. The U.S. Geological Survey found U.S. steel industry production was down one per cent in 2024 compared to 2017 and aluminum production has declined nearly 10 per cent.
A study involving the Federal Reserve Bank of New York, Columbia and Princeton universities found the tariffs increased net employment in the steel industry by 1,000 workers. However, it resulted in 75,000 fewer people being hired in industries that used the more expensive U.S. steel than would’ve occurred without the tariffs.
A 2019 National Bureau of Economic Research study confirmed the tariffs were passed along to businesses and consumers, resulting in them paying an additional US$12.3 billion.
It also found that U.S. producers took advantage of reduced foreign competition to raise their prices.
HOW DOES CANADA HIT BACK?
Canadian officials announced a dollar-for-dollar matching tariff when first threatened by Trump’s tariffs in January. They pulled those tariffs off the table after negotiating a pause in the tariff war with the U.S. president until March 4.
With the subsequent renewal of tariff threats, Prime Minister Justin Trudeau confirmed Canada again would respond with tariffs on U.S. goods if need be. He wouldn’t provide details beyond saying he’d be coordinating Canada’s response with other countries who have now been dragged into the squabble with Trump’s global steel and aluminum tariffs.
It’s felt likely that federal and provincial governments will single out U.S. states that supported Trump. The goods targeted will also likely be ones that Canada can get elsewhere or produce domestically.
That will likely include reciprocal tariffs on steel and aluminum, manufactured goods, agricultural products and a repeat of American spirits being removed from the shelves of provincial liquor stores.
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