Reciprocal tariffs have created a new economic risk

The trade war intensified further after U.S. President Donald Trump announced new tariffs on Canada. The U.S. began imposing a 50% tariff on $20 billion worth of goods from Canada on Saturday, while Trump also threatened on Monday to add a 50% duty on all automotive products from January 1.

Canadian Prime Minister Mark Carney unveiled Ottawa's retaliation package on Tuesday. Under the plan, phased tariffs of 15%, 25% and 50% will be applied to more than 700 U.S. products worth $20 billion in total, with the measures set to take effect on September 8.

Experts say the moves will put pressure on companies in both countries, but the blow is expected to be felt more sharply in Canada. Despite a recent rise in nationalist sentiment, they note that economic losses could gradually weaken public support.

Why is Canada seen as more vulnerable?

Canada's economy is roughly one-tenth the size of the U.S. economy. Since about 70% of Canadian exports go to the U.S. market, Washington's trade measures pose a greater risk for Ottawa.

Oxford Economics estimates that current U.S. tariffs could shave 0.3 percentage points off Canada's growth next year. While the impact is expected to remain limited across the country as a whole, some provinces and sectors are under much heavier pressure.

  • Manufacturers in Quebec, New Brunswick and Ontario stand out because they rely heavily on U.S. sales.
  • Exporters in British Columbia are also seen as vulnerable to weaker cross-border demand.
  • Substitutable goods such as cement, paper, lumber, beverages, clothing, plastics and electronics are considered especially exposed.

Trade advisers say the situation could put as many as 100,000 jobs at risk in Canada. Some companies are reported to be weighing plant closures and layoffs if tariffs become permanent.

USMCA and the auto supply chain face a critical test

Economists warn that if tensions escalate further, the United States-Mexico-Canada Agreement (USMCA) could also come under threat. Such a scenario could push Canada into recession and lock the economy onto a weaker growth path.

Because USMCA shields much of Canada's exports from U.S. tariffs, the average effective tariff rate remains relatively low. Even after the latest moves, the rate has risen from 5.1% to 6.9%.

Another vulnerable area is the auto sector. The cost of the previously imposed 25% tariffs on vehicles and parts from Canada was largely absorbed, but a possible increase to 50% could seriously disrupt the cross-border production chain. Experts say that would hurt not only Canada, but also U.S. states such as Michigan, Ohio and Indiana, which depend on Canadian-made parts.

Divisions are deepening inside Canada

Ontario Premier Doug Ford has floated hard-line retaliation options, including cutting electricity exports and curbing critical mineral exports, while Alberta and Saskatchewan are taking a more cautious view of adding export taxes on natural resources. According to experts, all eyes are now on September 8, when Canada's counter-tariffs take effect and the direction of the standoff may become clearer.