With the recent election of Donald Trump in the United States, we’re likely to hear a lot about one of his favourite economic policies — import tariffs. At the end of November, Trump announced that he planned to implement a 25% tariff on all imports from Canada, something that would significantly impact the Canadian economy.
Import tariffs are taxes that a government charges on goods brought into the country. Tariffs can serve several purposes, including protecting domestic industries, and are often used as leverage in trade negotiations. When a product crosses the border, the government of the importing country collects (and keeps) the tariff from the importing company, usually as a percentage of the total cost of the product. For instance, if a country has a 25% tariff on grain, a $10,000 load of barley would have a $2,500 tariff added to it, making the total cost to the importer $12,500. The impact of tariffs is felt by companies who have to pay higher costs for goods from outside the country. But tariffs also affect consumers, since those higher costs are passed on in the price of the final product.
This type of tax can be useful in protecting domestic industries when the imported goods are cheaper because of some unfair or undesirable advantage. For example, a foreign company may receive large government subsidies or operate under much lower labour and environmental standards, allowing it to set lower prices which then makes domestic producers and manufacturers uncompetitive. When properly calibrated, a tax on imported goods (tariff) can create a more level playing field by making the cost of imports relatively more expensive, so that an importer may decide to source their goods domestically instead.
However, in 2018, Trump used tariffs to tilt the playing field in the US’s favour by implementing significant tariffs on steel and aluminum imports from all other countries, regardless of their government subsidies or labour and environmental standards. The tariffs were set at 25% for steel and 10% for aluminum. He argued that these measures were necessary to protect American manufacturing jobs and reduce dependency on foreign metals. The Canadian and US steel and aluminum industries are closely integrated, and these tariffs caused huge disruptions for them and other US manufacturers that use Canadian steel and aluminum products. Canada was eventually able to negotiate an exemption from these tariffs, thanks to a co-ordinated effort from Canadian and US politicians and industry representatives.
Industries that were impacted by Trump’s tariffs last time, like the steel and auto sectors, are gearing up to make the case for a Canadian exemption again. But this time new industries are worrying about the impact of a 25% tariff on all Canadian exports to the US. Canada exports about $50 billion worth of goods to the United States each month, with the largest component being around $15 billion in energy products.
This issue is made more urgent because the trade agreement that replaced NAFTA, the Canada-US-Mexico Trade Agreement (CUSMA), is coming up for review in 2026. Trump is likely to use the threat of tariffs on Canadian and Mexican goods as leverage to push for concessions — on dairy quotas or softwood lumber, for example — that align with his broader political and economic agenda.
