1 Feb: U.S. President Donald Trump has followed through on his threat to impose steep tariffs on key trading partners, hitting Canadian imports with a 25% duty across the board, except for energy, which will face a 10% tariff. Mexico will also be subjected to the same 25% rate on all imports, including energy, while China faces a 10% tariff across all categories. The new trade measures are set to take effect on Tuesday.
The sudden escalation has prompted an emergency response from Canadian officials, who convened high-level discussions with provincial leaders to formulate countermeasures. Ottawa has strongly pushed back against the U.S. justification for the tariffs, which claims concerns over fentanyl smuggling. Data from U.S. Customs and Border Protection contradicts this rationale, showing that less than 1% of fentanyl and illegal crossings originate from Canada, with only 43 pounds of fentanyl seized at the northern border in the 2024 fiscal year.
Trump’s move marks a significant escalation in North American trade tensions, as Canada, Mexico, and China brace for economic consequences. The tariffs are expected to increase costs on both sides of the border. Canadian GDP is projected to shrink by 2.6%, costing households an average of $1,900 annually. Meanwhile, the U.S. economy is expected to suffer a 1.6% GDP decline, with American households facing an estimated $1,300 increase in expenses.
The tariffs come after months of uncertainty and shifting messages from the Trump administration. Initially, reports suggested a potential delay until March 1, but Trump dismissed those claims, stating there was “nothing” Canada could do to prevent the tariffs from being enforced on February 1.
Canada and the U.S. share an annual $1.3 trillion trading relationship, with $3.6 billion in goods and services crossing the border daily. Canada remains the largest supplier of energy to the U.S., providing over 99% of U.S. natural gas imports, 85% of electricity imports, and 60% of crude oil imports in 2023. The inclusion of energy in the tariffs has raised concerns about potential Canadian countermeasures that could further impact the bilateral trade relationship.
With retaliatory actions under consideration, the coming days are expected to define the next phase of the Canada-U.S. trade dispute, which could have widespread economic implications for businesses and consumers on both sides of the border.
