In response to President-elect Donald Trump’s proposal to introduce sweeping new tariffs on goods coming from Canada, Ontario Premier Doug Ford compared the tariff threat to a “family member stabbing you right in the heart.”
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And he’s right. Sweeping tariffs from the U.S. would be devastating to Ontario’s economy. Ontario and Canada generally benefit greatly from free trade with the U.S. and a threat to the free flow of goods and services across the southern border certainly threatens our prosperity.
How important are exports to the provincial economy?
In 2023, Ontario’s exports totalled $226 billion and represented more than one-fifth of the provincial economy. More than three-quarters of Ontario’s international trade is with the U.S. And trade with the U.S. represents 39% of the provincial economy.
Moreover, University of Calgary economist Trevor Tombe estimates that a 25% tariff would reduce the size of Canada’s economy by 2.6% next year compared to the status quo, sending the country into a recession. Given that Ontario is one of the provinces most exposed to trade with the U.S., Ontario would likely be hit even harder than Canada as a whole.
Now is a good time to stop to consider how trade has benefitted Canada and why we don’t want to go back to the bad old days of thick borders and severe friction interfering with the flow of goods and services around the world.
Over the years, various trade agreements (particularly with the U.S.) have made it cheaper for Canadians to buy imported goods. Our effective tariff rate (basically the average tax we impose on goods entering the country) today is about one-third as high as it was in the 1980s. Back then, large tariffs on certain goods and industries raised the cost of trade, which put a drag on North America’s economic performance, stifled economic activity and kept prices for many goods and services higher than necessary.
Canadians now benefit from being able to purchase cheaper goods from abroad or from domestic producers who compete in a global market. Higher tariffs may also increase the cost of doing business by potentially making necessitates such as equipment and machinery more expensive, which may eliminate jobs and reduce economic opportunity for Ontarians.
For the same reasons that lowering trade barriers has benefitted consumers in Canada and Ontario, Trump’s proposed trade tariffs would hurt his constituents, as Americans will face higher prices for many goods. However, the damage to Canada, particularly Ontario, will be greater because we depend more on trade with the U.S. than Americans do on trade with Canada.
In the weeks ahead, our political leaders at the provincial and federal levels must show the incoming U.S. administration the mutual benefit of trade between our countries and convince Trump not to enact his protectionist plan, which would be nothing less than a disaster for the Canadian and Ontarian economies.
Ben Eisen is a senior fellow with the Fraser Institute