U.S. tariffs on Canada and Mexico are coming next week, U.S. President Donald Trump has said — and the imminent threat is heightening fears about the futures of millions of jobs.
Economists are warning that the sweeping 25 per cent tariffs would be the “most significant trade shock” for Canada since the 1930s, with job losses expected across multiple sectors.
“There’s lots of sectors that have a lot of jobs tied both directly and indirectly to trade with the United States,” Erik Johnson, economist at BMO Capital Markets told Global News
The tariffs are expected to take effect March 4, a date Trump has repeated several times in recent weeks.
Analysts and economists are worried that sustained tariffs could push Canada into a recession.
“This shock far surpasses the 2018 tariffs in magnitude, diminishing the value of that period as a helpful guide for the economic impact ahead,” RBC chief economist Frances Donald and assistant chief economist Nathan Janzen said in a recent report.
Speaking to the members of the Mississauga Board of Trade and the Oakville Chamber of Commerce on Friday, Bank of Canada governor Tiff Macklem said the shock from the tariffs would be very different from the economic downturn caused by the COVID-19 pandemic.
“In the pandemic, we had a steep recession followed by a rapid recovery as the economy reopened,” Macklem said. “This time, if tariffs are long-lasting and broad-based, there won’t be a bounceback.”
Macklem said while Canada could recover part of the growth, the damage would be long-lasting.
A recent report by the Canadian Chamber of Chamber said around 2.3 million Canadians work in jobs tied directly to U.S. exports, while 1.4 million Americans work in jobs tied to Canadian exports.
All these jobs would be at risk from Trump’s tariffs, the chamber said.
According to the chamber’s Canada-U.S. Trade Tracker, nearly $229 million worth of goods have already crossed the border since the start of 2025, as of February 25.
Where could layoffs happen?
While economists agree the economic hit of tariffs would be felt across the country, particularly vulnerable sectors where the tariffs could spur layoffs or feel a heavy hit include:
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- Sectors with a heavy reliance on exports to the U.S.
- Auto sector
- Construction sector
- Energy sector
- Agriculture
- Consumer goods
When Macklem spoke on Friday, he said the Bank of Canada estimates an export drop of 8.5 per cent in the first year following broad-based tariffs, with Canadian exporters expected to respond by cutting production and laying off workers.
He said, “With exports to the United States accounting for roughly one-quarter of our national income, the shock would be felt across Canada.”
One of those would be the energy sector.
That sector employs roughly 276,000 people, with that rising to 900,000 when you count indirect jobs, according to the Canada Energy Regulator.
“If we focus on overarching export exposure, certainly the top of the list in Canada would be oil and gas and energy,” said Johnson.
The sector makes up roughly 9.2 per cent of Canada’s GDP, while manufacturing makes up about 10 per cent of Canada’s GDP and 1.7 million jobs.
“Manufacturing, especially auto manufacturing, and energy are sectors most impacted by tariffs,” said Tu Nguyen, economist at RSM Canada.
“These sectors will be the first to see layoffs were a broad-based tariff on all goods implemented, although the currency depreciation could soften the blow to Canadian exports.”
Canada’s auto industry has also been warning that the impact of Trump’s tariffs would be immediate.
Flavio Volpe, president of Automotive Parts Manufacturers Association, said the North American auto industry could shut down “within the week” if Trump’s tariffs go ahead on March 4.
According to Unifor, Canada’s auto industry directly employed 125,000 workers in 2022 including 37,000 in assembly, 17,000 in truck and trailer production and more than 71,000 in parts manufacturing.
Brian Kingston, president and CEO of the Canadian Vehicle Manufacturers Association, said, “If you put in place tariffs, which are taxes of the scale that are being contemplated by the United States, it could lead to production stoppages, job losses and of course, price increases for Americans.”
Volpe said “hundreds of suppliers and dozens of automakers” have said in meetings that they would refuse to pay Trump’s surtax, which would bring the industry to a grinding halt.
“Everybody agreed that we would shut down, so it would be immediate,” he said.
Nguyen said even the uncertainty around trade policy could hurt the Canadian economy.
“Tariffs are inflationary and impede growth. U.S. consumers are pulling back on spending. If a broad-based tariff were to move forward, expect slower growth in both countries. Sectors such as agriculture and consumer products would also be affected due to lower consumer demand,” she said.
Johnson said Canada’s construction sector could also be hit by retaliatory tariffs. While Canada exports large volumes of steel and aluminum to the United States, it also imports some specialized metal products, such as steel beams, Johnson said.
“For the construction sector, higher costs could lead to stalled projects and if those projects remain on hold for long enough it would translate into job losses,” he said.
The construction sector employs about 1.6 million people in Canada and makes up 7.4 per cent of GDP.
Around 2.3 million people work in the agriculture sector in Canada, making up around seven per cent of GDP, while the consumer goods sector makes up roughly 33 per cent of Canada’s manufacturing GDP and 40 per cent of jobs, according to the federal trade commissioner.
A Royal Bank of Canada report from December said that the impact of job losses would be amplified by how interlinked the two economies are.
The report added that while the impact of job losses will be felt across the country, different sectors will be hit in different provinces.
“Manufacturing-focused provinces like Ontario and Quebec would see significant challenges in motor vehicles and parts, metals, and aerospace industries. Any impacts to energy-exporting industries would largely be concentrated in Alberta, Saskatchewan, New Brunswick, and Newfoundland and Labrador,” it said.
Could Canada avoid a recession?
Economists generally define a recession as two consecutive quarters of an economy contracting.
The RBC report said Canada could avoid a full-blown recession if the tariffs are in place for no more than a few weeks.
“Tariffs removed within a matter of weeks are likely to create a temporary stall for Canada. However, if they extend over a matter of months (e.g. 3-6 months), Canada’s recessionary risks increase rapidly,” the report said.
Nguyen said a weakening loonie could mean there’s a slight silver lining for Canada.
“Currency depreciation could soften the blow to Canadian exports,” she said.
Nguyen added, “Manufacturing had a strong hiring month in January, which signals that despite trade policy uncertainty, current demand for goods such as autos and appliances remains robust.”
However, Johnson cautioned observers not to put the cart before the horse.
Tariffs may yet be avoided, he said, adding: “It’ll be important to see if this is still very much focused on extracting some sort of additional deal.”