REGINA – Recent developments surrounding President Donald Trump's threatened tariffs on Canada have created significant uncertainty and concern about the potential impacts on the economy. The tariffs, which are expected to take effect on March 4, 2025, include 25% levies on imports from Canada and Mexico, alongside additional tariffs on China. The ripple effects of these tariffs are leading many economists to forecast tough times for both Canadian and U.S. economies.
Jason Childs, an economics professor at the University of Regina, expressed his concern over the dire consequences these tariffs could inflict. He highlighted the Bank of Canada’s predictions, which suggest the country could face similar economic challenges to those experienced during the recession of 1991. "I think the Bank of Canada’s estimates are probably pretty close, if not closer to reality than anybody else’s...We’re looking at a recession on the magnitude of ‘91," Childs noted, indicating the potential loss of up to ten percentage points off Canada's GDP.
Childs explained, “Canada exports about 25% of its GDP. Seventy percent of those exports go to the U.S. If those exports get cut significantly, it could mean serious economic damage.” The impact might not only be confined to Canada, as he suggested this would also translate to broader economic ramifications for the U.S. as well.
Barry Eichengreen, Professor of Economics at Berkeley University, warned about the disastrous nature of tariffs on North American economies. He pointed out, "Tariffs on Canada and Mexico, which will elicit retaliation from the two countries, are a disaster...parts and components of motor vehicles assembled in North America cross these internal borders six or more times before they're completed.” Such dependencies mean any tariffs could considerably raise costs and diminish efficiency.
American consumers are also poised to feel the effects of these tariffs, with economists estimating they face the highest tariffs on imports since the 1930s. With rapidly rising inflation, families prepared to pay more for essentials might find themselves at the mercy of unanticipated price hikes. Retail giants like Walmart and Target have already begun to issue warnings about lower consumer confidence and decreased sales growth as direct consequences of the tariffs.
According to Alex Jacquez, Chief of Policy and Advocacy at Groundwork, Trump's approach to tariffs could significantly damage economic stability, underscoring the need for immediate diplomatic efforts. “Trump is really pouring gasoline on the fire by implementing across-the-board, indiscriminate tariffs,” Jacquez stated, reinforcing fears of entering recession territory if the administration fails to act.
Mark Zandi, chief economist at Moody's, has noted, “There are serious signs of economic weakness. Americans should be worried.” He explained how these tariffs might cost the typical U.S. household over $1,200 annually, based on data from the Peterson Institute for International Economics. Lower-income families, he warned, would likely suffer the most from rising costs attributed to trade tariffs.
Meanwhile, the economic outlook has triggered alarm among investors. For example, the Dow Jones Industrial Average experienced significant fluctuations, losing more than 410 points shortly after trading opened on March 4. This reflected deepening concerns about the economic policies being pursued by the Trump administration.
To maintain this economic course, the Trump administration seems to face mounting pressure to reconsider aspects of its trade policy. Goldman Sachs CEO weighed in, stating, "The president firmly believes there are imbalances with respect to how trade exists... he wants to level the playing field aggressively." This ambition, though, may be complicated by the reality of real-world economic interplay with global trading partners.
With the startup of new tariffs, many experts are keeping a close eye on the potential for retaliation from Canada and Mexico leading to increased tensions and, potentially, a trade war. The possibility of these countries imposing counter-tariffs could escalate quickly, creating significant challenges for U.S. exporters.
Economists are deliberative about these developments. They argue it is imperative for Canada to adopt strategic measures to reduce dependency on the U.S. market. Immediate steps should include initiatives to diversify trade relationships beyond their southern neighbor.
The looming tension surrounding these trade policies brings uncertainty and risks to industries dependent on free trade and open borders. Childs indicated the deep economic ties built over decades of trade agreements need to be acknowledged, warning, “Even small trade wars can have lasting impressions on smaller economies.”
“If we do experience these tariffs, production may permanently shift southward,” Childs concluded, emphasizing the long-term necessity for Canada to rethink its trade strategies. “We need to start trading with ourselves more, and it's high time to build infrastructure...to lessen dependency on the U.S.”
The call for diplomacy and constructive negotiation is now more pressing than ever, as both nations search for pathways to mutual agreement without sacrificing their economic interests. The upcoming months are likely to be pivotal for Canadian and American businesses alike as they navigate the potential fallout of these tariffs, with both prosperity and uncertainty hanging delicately in the balance.