There is a growing consensus that U.S. tariffs on Canadian goods may escalate in the near term, with new measures reportedly under consideration as early as August 1st. Canadian exports—particularly autos, aluminum, and steel—are already subject to levies, and recent speculation has emerged around possible tariffs on copper and other resource-based products. The repeated calls for broader protectionist measures from U.S. policymakers appear to be shaped by strategic interests in Canada’s critical minerals and the broader trade imbalance. In response, Canada has taken a range of countermeasures, including the reconsideration of high-profile business contracts, proposed restrictions on U.S. alcohol imports, potential limitations on electricity exports, and the introduction of a digital services tax. Internally, the federal government has explored policy frameworks such as the “One Canada” bill aimed at reducing interprovincial trade barriers and advancing trade diversification efforts. However, the effectiveness of these initiatives remains limited in the short term, given Canada’s longstanding economic integration with the U.S., particularly its dependence on the American market for exports. In the wake of rising trade tensions, multiple multinational firms—including major automakers and metals producers—have halted or scaled back operations in Canada, citing tariff uncertainty. Although the Canada–United States–Mexico Agreement (CUSMA) provides zero-tariff protection for many goods, the broader trajectory of U.S. trade policy poses material risks to Canadian industry. Against this backdrop, it becomes critical to assess the magnitude of economic disruption that these tariffs could produce. This article reviews recent estimates of the economic cost to Canada from escalating U.S. tariff measures.
A notable contribution to this discussion comes from Lam (2025), whose study published in the Bank of Canada’s *Staff Analytical Notes* assessed the price impact of U.S. tariffs on Canadian consumers using a synthetic control methodology and micro-level price data from Statistics Canada. Focusing on the 2018 U.S.-Canada trade dispute—during which the U.S. imposed 25% and 10% tariffs on Canadian steel and aluminum respectively, with Canada responding in kind—Lam estimated that approximately 60% of tariff costs were passed through to final consumers within six quarters. The remaining burden was likely shared by Canadian importers, domestic distributors, and U.S. exporters. The research further classified the persistence of price impacts across a representative basket of 37 goods: roughly 30% experienced short-term price increases, 40% showed sustained price effects even after tariffs were lifted, and 30% demonstrated no measurable impact. Aggregating across these categories, the study found that tariffs raised the average price level of both tariffed and non-tariffed products by 2.5% over 18 months. Given the current macroeconomic backdrop—which includes a lagging post-pandemic recovery and renewed inflationary pressures—the price impacts of similar tariffs today could exceed those observed in 2018.
In a separate January 2025 analysis, the Canadian Chamber of Commerce offered a macro-level estimate of the potential fallout from a breakdown in U.S.-Canada trade relations. The report begins by highlighting the scale of bilateral commerce: $1.3 trillion in annual trade, with 1.4 million American jobs and 2.3 million Canadian jobs tied to this relationship. According to their model, the imposition of a 25% tariff on Canadian goods could reduce Canada’s GDP by 2.6% and cost the average Canadian household approximately $1,900 annually. If the proposed escalation to a 35% tariff were implemented in August 2025, GDP contraction could rise to 3.64%, with household costs climbing to $2,660 annually—roughly $220 per month. While this figure may seem modest in relation to the median household income of $70,500 (as reported by Statistics Canada for 2024), it becomes more pronounced when viewed through the lens of a weakening labour market and declining consumer purchasing power.
A third study by Sood (2025), published via Statistics Canada, assessed the impact of tariffs from a business perspective. Drawing on export and import data for April 2025, the study reported a 15.7% decline in Canadian exports to the United States and a 10.8% drop in imports from the U.S. during that period. As a result, Canada’s merchandise trade surplus with the U.S. narrowed to \$3.6 billion—the smallest surplus since December 2020. Survey data within the study showed that 32.2% of Canadian exporters to the U.S. expect high business impact from current and proposed tariffs, while 19.8% foresee medium impact. Key concerns included increased input costs, reduced export volumes, and compressed profit margins. Among businesses importing from the U.S., expectations were somewhat less severe but still significant. Importantly, the research observed a growing tendency among both exporters and importers to explore alternative markets, although structural barriers and cost challenges continue to limit rapid diversification.
Taken together, these studies underscore the widespread and multi-faceted impact of U.S. tariffs on the Canadian economy—spanning households, businesses, and broader macroeconomic indicators. While the extent of damage varies across sectors, consumer welfare appears to be among the most vulnerable, particularly through inflationary pressures and job insecurity. Canada’s policy response has included a range of retaliatory and preemptive measures, but the long-term effectiveness of these strategies remains uncertain. The current trade environment calls for a more strategic and calibrated response, leveraging Canada’s strengths in energy exports, critical minerals, and tourism. A diplomatic but firm approach is essential—one that avoids direct confrontation but signals economic consequence. As policymakers consider their next steps, aligning trade strategy with broader national interest will be paramount.
Written by Michael Ogunremi with credit to the literatures reviewed.
