Experts say that a flight of fares between the United States and Canada could plunge both countries into a recession and seriously disrupt cross-border trade between major trading partners.
A Canadian government official said Wednesday it was studying possible retaliatory measures on some U.S. imports after President-elect Donald Trump threatened Monday to impose a 25% off all merchandise of Canada and Mexico from his first day in office. The official, who stressed that no final decision had been made, spoke on condition of anonymity because he was not authorized to speak publicly.
Mexican President Claudia Sheinbaum also suggested earlier this week that the country could retaliate against the United States with their own tariffs on American products. Trump said strengthening the requirements was necessary to stem the flow of undocumented immigrants and illegal drugs from Mexico and Canada.
“Across-the-board tariffs of 25% on Canada, threatened by U.S. President-elect Donald Trump earlier this week, would push Canada into a recession in 2025, cause a sharp rise in inflation and force the Bank of Canada to maintain its rates higher next year,” said economist Michael Davenport. of Oxford Economics said in a report Thursday.
Inflation in Canada would reach 7% by mid-2025, while unemployment would approach 8% by the end of the year, according to the investment research firm. The country’s automotive, energy and heavy manufacturing industries, which depend on exports to the United States, would be hardest hit, he added, noting that these sectors also depend on components from American suppliers.
Canada retaliated with its own tariffs when Trump imposed tariffs on the country’s steel and aluminum exports to the United States during his first term in the White House. Canada targeted American products, including whiskey and yogurt, most of which came from a factory in Wisconsin, the home state of then-Speaker of the House of Representatives Paul Ryan.
Canadian officials say lumping Canada in with Mexico is unfair, but they say they are willing to invest in border security and work with the Trump administration to reduce the numbers coming from Canada. Canadians also worry about an influx of migrants if Trump implements his mass deportation plan.
The United States would also feel the pain
Trump and his allies, including his choice for Treasury secretary, Scott Bessant, said the tariffs deployed during his first term advanced U.S. economic goals, including increasing federal revenue, and did not stimulate inflation.
But the United States would likely not remain unscathed in a full-scale trade war with Canada. Widespread tariffs on American goods would likely cause a “mild” recession in the United States and break political relations between the allies, according to Oxford.
Although the United States is the world’s largest oil producer, Canada supplies approximately 20% of the oil used in the United States. As a result, U.S. gas prices could rise 30 to 40 cents a gallon, and potentially as much as 70 cents, shortly after Trump imposes the tariffs on Canada, Patrick De Haan said. , head of oil analysis at GasBuddy, to CBS MoneyWatch.
With so much at stake, the new 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 to impose across-the-board tariffs, we still believe the Trump administration is unlikely to impose tariffs on Canadian auto and energy exports, which make up about 40% of total Canadian exports to the United States,” Davenport said. “The North American energy sector and automotive supply chains are highly integrated across the Canada-US border and any tariffs on these products would also have a significant negative effect on the American economy.”
contributed to this report.
