Trump's tariffs spark an 'existential battle' for Canada
Analysts warn that even if broad tariffs are lifted, targeted duties will likely remain, driving up inflation.
U.S. President Donald Trump has followed through on his tariff threats.
On Tuesday, the Trump administration imposed sweeping 25% tariffs on Canadian imports, excluding energy products, which faced a 10% levy. Mexico was also hit with 25% tariffs, while duties on Chinese goods doubled to 20%.
Royal Bank of Canada economists Francis Donald and Cynthia Leach described the move as the most significant trade shock Canada has faced in nearly a century.
Vina Nadjibulla, vice president of research and strategy at the Asia Pacific Foundation of Canada, called it an "existential fight" for the country.
Regardless of the long-term impact, economists agree that a trade war between the U.S. and Canada is now underway.
In response, Canada imposed 25% tariffs on $21 billion (CAD 30 billion) worth of U.S. goods and warned of further tariffs targeting an additional $87 billion (CAD 125 billion) in products within three weeks if necessary.
Mexico has pledged retaliation but is waiting until Sunday to act.
China responded with tariffs of 10-15% on select U.S. imports, new export restrictions on specific U.S. entities, and a formal complaint filed with the World Trade Organization. Rachel Ziemba, a senior fellow at the Center for a New American Security, said the duration of the tariff battle is now in the U.S.'s hands.
Even if broad tariffs are eventually lifted, Ziemba warned that more focused tariffs are likely to remain, fueling inflation and damaging the economies involved.
"The economic toll will be significant on all sides.Prices will rise, inflation will increase, and businesses will struggle to plan amid this uncertainty and the threat of future tariffs."
"It's impossible to predict where this is going," Brett House, a professor at Columbia Business School said. "More tariffs on more countries are likely before we see any reversal. The Trump administration is unpredictable and often changes course."
House also criticized Trump’s justification for targeting Canada, claiming the stated concerns over illegal immigration and fentanyl were based on "completely false" data. In reality, he said, the flow of unauthorized migrants, weapons, and drugs has been increasing from the U.S. into Canada.
Recent data from Canada’s Border Services Agency supports this, showing a sharp rise in U.S. drug and gun smuggling, with drug seizures climbing from 3.8 million grams to 8.3 million grams in 2024.
A Profound Shift
House noted that while negotiations are possible, Trump typically responds to either praise or pressure — and Canada has already tried the former.
"The Prime Minister’s office is now rightly turning to pressure," House said.
Canada is also considering tariffs on electricity exports to the U.S. But beyond economic retaliation, the situation has sparked deeper concerns about the future of Canada-U.S. relations.
Some estimates suggest Trump’s tariffs could eliminate up to 1.5 million Canadian jobs and push the economy into recession. Prime Minister Justin Trudeau accused Trump of seeking to cause the “total collapse of the Canadian economy” to make annexation easier.
“This is about more than just tariffs," Nadjibulla said. "We’re witnessing a fundamental shift in the Canada-U.S. relationship."
Calling it an existential challenge, she emphasized the need for unified leadership across Canada, adding that no one can predict how this crisis might spill over into foreign policy, defense, or security.
Even if tensions ease, Nadjibulla said the relationship between the U.S. and its traditional allies has been fundamentally altered. "It’s clear we need to strengthen our national resilience and diversify our global trade partnerships," she said. "This is a wake-up call for Canada."
It’s also a warning for Mexico. Some Canadian officials have floated the idea of negotiating a separate deal with the U.S., sidelining Mexico and replacing the USMCA.
However, House cautioned that dividing Mexico and Canada plays into Trump’s strategy of isolating negotiating partners.
"There's strength in unity," House said, warning that suggestions of excluding Mexico could strain that alliance and undermine Canada's position.
On Tuesday, U.S. Commerce Secretary Howard Lutnick told Fox Business that Trump is expected to reach a compromise with Canada and Mexico, with an announcement likely on Wednesday.
Still, Ziemba noted that any agreement would not erase the damage done to North America's trade relationships, particularly as sector-specific tariffs are expected in the future.
“The cost of a trade war is high, but a truce is possible,” Ziemba said.
Until then, as Canadians say when a hockey fight is brewing — it’s elbows up.
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