Overview

US President Donald Trump has announced plans to implement a 25% tariff on all imports from Canada, to take effect as soon as March 5th, with the rates being 25% on most goods and 10% on energy.

Trump has several justifications for implementing these tariffs. First, Trump claims that border security is an issue, specifically in terms of fentanyl and illegal immigration. Trump also claims that the US subsidizes Canada to the tune of $200 billion per year. This is based on the fact that the US imports more goods from Canada than they export to us. This is called a trade deficit. Economists are unsure of how Trump arrived at the $200 billion number, since the US-Canada trade deficit was only $45 billion in 2024. Finally, he points to Canada falling short of NATO’s target for defence spending.

Background

Import Tariffs

Import tariffs are taxes that a government charges on goods brought into the country. 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 importer would pay the producer of the barley the usual $10,000 and then pay the $2,500 tariff to their government. This means that 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.

Import tariffs have historically been used to protect 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 (import 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.

How US import tariffs might affect Canada

Since the import tariffs would make Canadian products relatively more expensive, Canadian exporters may face pressure to reduce their prices, move their production to the US, or find other buyers outside of the US. Finding other buyers will likely be very difficult, since many Canadian and US industries are so closely integrated and Canadian industry has been developed specifically to serve the needs of US industry. The most likely scenario is that those who can move production to the US will do so, and those who are not able to will have to cut back on their production.

More than 75% of Canada’s exports go to the United States. Canada exports about $50 billion worth of goods each month, with the largest component being around $15 billion in energy products. Blanket import tariffs would almost certainly cause hundreds of thousands of jobs lost and a recession in Canada, which could be worsened further by the return of inflationary pressures.

How US import tariffs might affect US industry

Due to the deep integration of Canadian and US industries, adapting supply chains to new 25% tariffs will be challenging for the US. Trump did not pair tariffs with plans to rebuild domestic manufacturing and agriculture, which casts doubt on the US’s ability to replace Canadian inputs. Consequently, US prices would likely rise, and US industry might end up siding with Canada. Trump’s claim that “Canada makes 20% of our cars” is misleading since Canada supplies only 8–9% of final assemblies. TD Economics estimates replacing Canadian auto assembly would require six new assembly plants, a 75% boost in US production, and over $50 billion in investment—excluding parts manufacturing. Similarly, US refineries, designed for Canadian sour crude, would struggle to shift feedstocks, and even a 10% tariff on Canadian crude would raise prices significantly at the pump.

Trump’s justifications and Canada’s response

In response to Trump’s concerns, Ottawa allocated $1.3 billion in its December fall economic statement to disrupt fentanyl flows and enhance Canada-U.S. border surveillance. However, Canada is not a major source of illegal immigration or fentanyl. U.S. Customs reports less than 20 kg of fentanyl seized along the Canadian border compared to over 9,000 kg along Mexico’s, and only about 1% of intercepted illegal entrants come from Canada. Additionally, Canada’s trade deficit with the U.S. — just 4% of the overall U.S. deficit — is largely confined to energy and auto parts, reflecting higher U.S. purchasing power rather than a subsidy. In defense, Canada plans to raise spending from 1.37% to 2% of GDP, adding roughly $20 billion annually for new equipment.

Response to US Tariffs

During his first term, Trump’s tariffs on Canadian steel and aluminum prompted Canada to retaliate with matching tariffs and targeted measures against US goods such as Florida orange juice and Kentucky bourbon. Canadian officials, industry leaders, and sympathetic US state governors pressured Trump to exclude Canada from tariffs, which was ultimately successful but  took a year. Now, with Trump less concerned about re-election, targeted tariffs may be less effective, though Canada has still vowed dollar-for-dollar retaliation. More extreme options include restricting energy and critical mineral supplies - a measure backed by all provinces except Alberta - or imposing export tariffs on select goods. These tactics aim at vulnerable areas since Canada supplies about 60% of US oil imports and provides electricity to several US states from BC, Ontario, and New Brunswick.

Response to support the Canadian economy

The federal government is expected to enact emergency measures for affected industries and workers. These may include low-cost business loans, assistance in finding international buyers, and expanded Employment Insurance (EI) support. Employment and Social Development Canada (ESDC) is reviewing previous measures to combat economic downturns and trade disputes. Parliament is not in session, but the federal government can ease work-sharing program requirements and waive the one-week EI waiting period without parliamentary consent. ESDC might also pilot targeted programs or reintroduce COVID-era EI measures, which require only Cabinet approval. Meanwhile, right-wing economists and interest groups are urging tax cuts and deregulation to boost inter-provincial trade and maintain the competitiveness of the Canadian economy.

CUPE’s response

As a public sector union, it is not yet clear if or how these tariffs will affect CUPE members’ jobs. We may see some impacts in the energy sector, or at the Port of Montreal. The longer the tariffs are in place, the more likely we are to see budgetary strain at all levels of government and there may be knock-on impacts for public sector workers.

CUPE has been actively coordinating with other Canadian unions on trade issues through the Canadian Labour Congress and the Trade Justice Network. We will stand shoulder to shoulder with our allies in the labour movement to defend Canadian jobs and livelihoods, and fight back against right-wing attempts to exploit this crisis to further their agenda of cuts to public services.