Experts say a volley of tariffs between the US and Canada could plunge both countries into recession and severely disrupt cross-border trade between key trading partners.
A Canadian government official said Wednesday that he is considering retaliatory tariffs on some American imports after President-elect Donald Trump on Monday threatened to impose legislation. 25% tax on all goods of Canada and Mexico on his first day in office. The official, who emphasized that no final decision has been taken, spoke and asked not to be identified as they are not authorized to speak publicly.
Mexican President Claudia Sheinbaum earlier this week reiterated that the country he can take revenge against the US for its tariffs on American products. Trump said more jobs are needed to stem the flow of undocumented immigrants and illegal drugs from Mexico and Canada.
“The 25% tariffs on Canada threatened by US President-elect Donald Trump earlier this week will push Canada into recession by 2025, fuel inflation and force the Bank of Canada to raise rates next year,” economist Michael Davenport said. of Oxford Economics said in a report on Thursday.
Inflation in Canada will rise to 7% by mid-2025, and unemployment will reach 8% by the end of the year, according to an investment research firm. The country’s auto, energy and heavy industries, which rely on US exports, will be heavily impacted, he added, noting that the sectors also depend on parts from American suppliers.
Canada fired its job when Trump slapped tariffs on the country’s steel and aluminum imports from the US during his first term in the White House. Canada targeted US products including whiskey and yogurt, most of which came from a single plant in Wisconsin, the home state of then-Speaker of the House Paul Ryan.
Canadian officials say merging Canada and Mexico is wrong but say they are ready to invest new money in border security and work with the Trump administration to reduce numbers from Canada. Canadians are also worried about the influx of immigrants if Trump follows through on his mass deportation plan.
The US could also be hurt
Trump and his allies, including his picks for Treasury Secretary, Scott Besant, he said that the rates used during his first term improved US economic goals, including increasing federal funds, and it did not increase inflation.
But the US is unlikely to walk away unscathed from a full-blown trade war with Canada. International tariffs on American products could cause a “shallow” recession in the US and break political ties between allies, according to Oxford.
Although the US is the world’s leading producer of oil, Canada supplies about 20% of the oil consumed. As a result, US gas prices could rise 30 to 40 cents a litre, and possibly as high as 70 cents, soon after Trump imposes tariffs on Canada, Patrick De Haan, head of fuel analysis at GasBuddy, told CBS MoneyWatch .
With so much on the line, the incoming Trump administration is likely to impose limited tariffs on Canadian products, such as steel, lumber and farm products such as milk.
“Despite Trump’s recent threat of total tariffs, we still think it is unlikely that the Trump administration will impose tariffs on Canadian auto and energy exports, which make up about 40% of Canada’s total exports to the US,” Davenport said. “The North American energy sector and automotive supply chains are highly integrated along the US-Canada border and any tariffs on these goods will have a significant negative impact on the US economy.”
contributed to this report.
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