What industry would be hit hardest in Canada by Trump’s proposed tariffs?
Published November 28, 2024 at 12:07 pm
U.S. President-elect Donald Trump’s pledge to impose across-the-board tariffs on Canadian exports if issues with the border are not fixed by the time he is sworn in would have broad implications for the economies of both countries.
Canadian business leaders have said that it would be a “lose-lose” scenario if Trump does in fact impose a 25 per cent tariff.
Trump’s threat, issued Monday on social media, has already prompted strong reactions in Canada — an emergency meeting was held Wednesday with federal officials and the country’s premiers, with disputes over border security in public view.
If Trump does in fact follow through and impose sweeping tariffs, which sectors of the economy would be hit hardest?
Prior to the Nov. 5 election, University of Calgary economics professor Trevor Tombe conducted an analysis for the Canadian Chamber of Commerce looking at what would happen if across-the-board tariffs were implemented.
Tombe’s analysis looked at the possibility of 10 per cent tariffs, not 25 per cent, given that during the election Trump had promised to introduce a universal 10 per cent tariff on all American imports.
Regardless, it provides valuable insight on what would happen to Canada’s trade relationship with the United States if the tariffs were imposed.
Canada overall relies more on trade with the United States given its relatively smaller economy. Despite that, the countries’ economies are strongly interconnected and effects would be felt on both sides of the border.
In terms of which industry would be hit hardest, energy, such as oil and gas, tops the list, Tombe’s report said.
“Energy products are by far the largest item exported from Canada to the United States, approaching $85 billion in the first half of 2024 or nearly $170 billion on an annualized basis,” he wrote.
“The second most significant export is motor vehicles and parts, which accounted for nearly $40 billion in exports over that same period.”
And if tariffs were implemented, both of those industries would see huge impacts.
“Exports from these sectors as a share of their output to the United States would decline significantly under a tariff,” Tombe wrote.
“I estimate that if a 10 per cent tariff were imposed across-the-board on all sectors, the share of output exported to the United States from these affected sectors would decline by 22 percentage points. In the motor vehicle and transport equipment sectors, the decline in U.S. exports as a share of their output would be 10 percentage points.”
Other areas hardest-hit would be basic metals with a nine per cent reduction, chemicals with eight per cent, and paper products with seven per cent, he said.
“However, such a policy move is unlikely to occur without a response from other countries, as we’ve seen in previous instances,” Tombe noted.
If other countries retaliate by imposing their own 10 per cent tariffs, the impacts would be significantly intensified.
Significant impacts would also be felt south of the border, Tombe noted throughout his report, given the interconnectedness of the economies.
Tombe said while it is theoretically possible for a country with a large economy to benefit from modest across-the-board tariffs, that may not be the case here.
“I estimate that real incomes in Canada would decline by 1.5 per cent, while labour productivity would fall by nearly 1.6 per cent,” he said, in the case of full retaliation of a 10 per cent tariff.
“In the United States, both real income and labour productivity would decline by approximately one per cent. These are large changes, equivalent to just over $800 USD (or nearly $1,100 CDN) per person in lost real annual income for individuals on both sides of the border.”
Tombe’s full report can be found here.
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