The trade war launched by US President Donald Trump with Canada is expected to hurt businesses in both countries.
But experts say the damage to Canada’s economy will be even worse, as retaliatory tariffs increase the likelihood of a recession.
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On Saturday, the United States imposed 50% tariffs on $20 billion worth of Canadian goods after trade negotiations between the two countries collapsed. President Trump on Monday threatened to impose new 50% tariffs on all auto products against Canada starting January 1st.
On Tuesday, Prime Minister Mark Carney announced retaliatory measures against more than 700 U.S. products, also worth $20 billion. The tariffs are set in stages of 15, 25 and 50 percent and are scheduled to take effect on September 8th.
But Canada’s efforts have sparked a rise in nationalism, a sentiment that could worsen in the face of economic losses, experts warn.
“People are very energized by the idea of Canada standing up to Trump, and there’s a palpable feeling of patriotism in Ottawa, but we don’t know how long that will last,” said Bina Najibulla, co-founder and CEO of the Center for Strategic and National Strategy, a nonpartisan policy think tank in Canada.
Canada’s economy is one-tenth the size of the United States and sends about 70% of its exports south of the border, making it particularly vulnerable to U.S. trade sanctions.
U.S. tariffs will have a limited impact on Canada’s economy as a whole, with advisory firm Oxford Economics estimating it will cut gross domestic product (GDP) by 0.3 percentage points next year, but certain provinces and sectors will be hit harder.
Expected job losses
Manufacturers in Quebec, New Brunswick and Ontario will be most affected, as will exporters in British Columbia that rely heavily on sales to the United States.
According to Oxford Economics, these states are vulnerable because they produce goods that are easily substituted. Topping the list are cement, paper, wood, beverages, clothing, plastics, and electronics.
Similarly, while the impact of Canada’s tariffs on the United States would be reduced, costs would increase for states and businesses that rely on Canadian trade.
“This is absolutely a trade war,” said Ashley Kalin, an international trade consultant at Peacock Tariff Consulting in Toronto. “We are also feeling the effects in Canada, where we expect more than 100,000 jobs to be lost.”
Kalin told Al Jazeera that the company has already heard that some customers are planning to close factories and lay off workers if the tariffs continue. “That’s how real this is,” she said.
Tensions continued to rise this week after President Trump announced Thursday that the U.S. federal government would now refer to Lake Ontario as Lake of the Americas, in protest of Canada.
Prime Minister Mark Carney pointed out on social media that the word “Ontario” is an Indigenous word, not a Canadian one. “This name is more than 400 years old, predating the Declaration of Independence of the Confederation of Canada and the United States,” Carney wrote.
Manitoba Premier Wab Kinew also dismissed the name change as a weak effort. President Trump made a similar announcement last year, changing the name of the Gulf of Mexico to the Gulf of America amid tensions with Mexico over immigration and border security.
“When rock bands really went over the hill, have you ever seen them in casinos playing songs from 50 years ago? I think that’s part of the Donald Trump presidency we have now,” Kinew told reporters in Winnipeg. “This is not his best work.”
“Pass forever low”
Economists fear that further deterioration in relations could lead to the end of the free trade agreement between the United States, Mexico and Canada, known as USMCA.
Tony Stilo, director of Canadian economics at Oxford Economics, warned in a note shared with Al Jazeera that that scenario “would push Canada’s economy into recession and leave it on a path to permanent weakness.”
After all, USMCA protects most Canadian exports from U.S. tariffs. As a result, the effective tariff rate (overall average) for Canadian products remains at 5.1%, one of the lowest in the world.
Even if the tariffs go into effect last weekend, the effective tariff rate on Canadian exports is estimated to rise to just 6.9%.
“A war of attrition doesn’t help either economy, but Canada has shown itself to be very resilient,” Matthew Holmes, executive vice-president and head of public policy at the Canadian Chamber of Commerce, told Al Jazeera in an email.
He added that he hoped both countries would seek to de-escalate the trade war, saying, “We believe that the negotiators’ goal is to get back to the table in a timely manner and not to retaliate indefinitely.”
Auto industry braces for shock
Another area of concern is the automobile manufacturing industry. Roughly 18 months ago, early in his second term, President Trump imposed a 25% tariff on cars and auto parts from Canada, exempting parts that meet USMCA requirements.
Manufacturers and dealers absorbed most of the cost increases, helping to keep new car prices relatively stable.
But experts say President Trump’s threat to double auto tariffs to 50% starting in 2027 is expected to severely damage the cross-border auto industry.
Bernard Jarosz, chief U.S. economist at Oxford Economics, said in an analysis shared with Al Jazeera that the auto industry’s buffers are “dwindling.”
Additionally, a 50% tariff would likely hurt automakers on both sides of the border. Jarosz said Midwestern states such as Michigan, Ohio and Indiana, whose auto industries rely on Canadian-made parts, would be “disproportionately hurt” by the additional tax.
Jarosz added that the timing of tariff increases is also important. Auto tariffs will skyrocket in the months after the U.S. midterm elections.
This will make Trump “less constrained” by domestic politics, Yaross said.
Mr. Jarosz suggested that President Trump could be freer to take aggressive steps on trade without fear of angering voters. The result “could be a more volatile tariff environment during the final two years of President Trump’s second term,” Yaros said.
Impact on others
Within Canada, President Trump’s recent attacks have also caused political rifts within the country.
Ontario Premier Doug Ford is advocating a tough approach to countering U.S. trade measures. He warned that “everything is on the table” in terms of retaliation, including halting electricity and vital mineral exports to the United States.
But other states are reluctant to adopt a scorched-earth approach. Alberta and Saskatchewan have rejected proposals to add export taxes to natural resources such as oil and potash, which are key foundations of their economies.
Experts like Najibullah said the world is watching to see how Canada deals with its increasingly hostile neighbor to the south.
“Canada’s ability to toe the line has implications for other countries,” Najibulla said.
The key date she has her eye on is September 8th. That’s when Canada’s reciprocal tariffs go into effect.
“It’s really hard to predict how this will turn out,” Najibullah said. “The atmosphere this week is one of escalation.”
