Canada’s Trade Turmoil: Unprepared and Outmatched

Canada has stumbled into a full-scale economic war, yet the Trudeau government seems caught flat-footed. Trump’s latest tariffs, the most aggressive since the 1930s, threaten to become Canada’s most severe trade disruption in decades. With a 25 percent tariff on Canadian imports, a 10 percent levy on energy, and retaliatory measures now in play, Canada is facing an economic shock that threatens key industries and could significantly slow growth, with the potential to trigger a recession.

How We Got Here

Economists warn that this is the most severe trade disruption since the Smoot-Hawley tariffs of the 1930s, which exacerbated the Great Depression by triggering global retaliation. RBC Economics notes that Trump’s tariffs will push US trade policy to its most protectionist stance since the 1940s, with average tariffs rising to nearly 11 percent—far surpassing the 2018 US-China trade war, which only increased tariffs from 1.5 percent to 3 percent. As the largest US trade partner, Canada is uniquely vulnerable, with a higher share of its GDP tied to American trade and fewer alternative markets to offset the impact.

On February 1, Trump invoked the International Emergency Economic Powers Act (IEEPA) to justify new tariffs, citing economic security concerns related to illegal immigration and fentanyl trafficking. The policy targets both industrial imports and energy products, with a 25 percent tariff on Canadian goods and a 10 percent tariff on energy exports—a strategic move given US reliance on Canadian energy. On February 3, a last-minute agreement between Trump and Trudeau paused implementation until March 4. Meanwhile, Ottawa is scrambling.

Economic Consequences

A trade war of this scale has predictable consequences, according to some economists. RBC Economics estimates Canada’s GDP could shrink between 3.4 percent and 4.2 percent—Bank of Canada models project up to 6 percent. Unemployment could rise by as much as 2-3 percentage points as manufacturers slash jobs. Sectors hit hardest include automotive, steel, aluminum, and consumer goods, all deeply intertwined with US trade.

Automotive: Parts manufactured in Canada cross the US border multiple times before assembly. Every round of tariffs increases costs, potentially forcing plant closures and layoffs.

Steel & Aluminum: The US is Canada’s largest customer. The Surrey Board of Trade (SBOT) has already warned of severe disruptions, threatening thousands of BC jobs.

Energy: Trump’s decision to cap energy tariffs at 10 percent acknowledges US reliance on Canadian supply—but it still damages competitiveness.

Consumer Goods & Agriculture: Retaliatory tariffs from Canada on US imports will drive up costs for ordinary Canadians, fueling inflation.

For businesses, the uncertainty is just as damaging as the tariffs themselves. The Greater Vancouver Board of Trade (GVBOT) and Canadian Federation of Independent Business (CFIB) have repeatedly sounded alarms, calling for government action to cushion the blow. Their concerns have largely fallen on deaf ears.

(Data: Canadian Chamber of Commerce)

Ottawa’s Strategy

Trudeau’s government has taken an ad hoc approach, scrambling to negotiate a pause by offering security concessions rather than preparing a robust trade strategy. The federal government’s $1.3 billion border security deal—which includes appointing a fentanyl czar, listing cartels as terrorist organizations, and launching a joint strike force—was framed as a necessary step. Some have interpreted it as an act of appeasement to stave off immediate economic damage.

Meanwhile, provinces have been left to fend for themselves. BC has directed public liquor stores to remove American liquor from select states, and the Council of the Federation is sending premiers to Washington to lobby US officials directly. But these fragmented efforts expose the lack of a unified national strategy.

The GVBOT said in a statement that its members are facing reduced orders, increased costs, disrupted supply chains, and potential layoffs due to the continued trade war.

“We need to move quickly to remove inter-provincial trade barriers, diversify trade, and implement measures to make our economy more resilient like speeding up permitting, reducing red tape and supporting Canadian businesses and workers,” the GVBOT told Coastal Front on Tueday.

“We cannot take the ’30-day pause’ for granted. We must act and do whatever is necessary to make it easier to build things in Canada. We have what the world needs to grow. Let’s build Brand BC and Canada, support our local businesses, and make our economy more resilient.”

(Data: Canadian Chamber of Commerce)

What Canadians Are Calling For

The government’s response to the tariff crisis has been disjointed. While officials stress a "Team Canada" approach, provincial leaders, business groups, and trade organizations are pursuing their own agendas.

Prime Minister Justin Trudeau’s temporary tariff reprieve came at a cost: a $1.3-billion border security plan and policy shifts that align Canada with US drug and immigration enforcement. Critics argue these concessions set a dangerous precedent for further economic coercion.

Corporate lobbyists are using the crisis to push for tax cuts, deregulation, and increased military spending, arguing these measures will make Canada more competitive. The Business Council of Canada, Canadian Chamber of Commerce, and other corporate groups have framed these demands as necessary adjustments to keep Canada “competitive” under US pressure. Their proposals, however, mirror the same policy wishlist they have advocated for long before Trump’s tariffs were announced.

Goldy Hyder, CEO of the Business Council of Canada, has openly linked Canada’s response to broader economic “reforms,” urging the government to lower corporate taxes, weaken environmental regulations, and fast-track major infrastructure projects—including pipelines. At the same time, the Business Council is pressuring Ottawa to dramatically increase military spending, proposing an increase to 2.5 percent of GDP, surpassing even NATO’s baseline commitment.

The proposed increase in defence spending would push annual expenditures from $41 billion to over $110 billion within a decade. To offset these costs, the Business Council of Canada is calling for major non-defence spending cuts. In an interview with CBC, Hyder suggested that these reductions could be achieved through a “program review,” similar to past federal austerity measures that reduced funding for social programs, healthcare, and education.

While corporate lobbyists position these policy changes as long-term economic solutions, industry groups warn that businesses are facing immediate consequences. Manufacturing, energy, and agriculture sectors are already seeing job losses and supply chain disruptions due to uncertainty and rising costs. The Greater Vancouver Board of Trade and the Surrey Board of Trade have urged the federal government to take immediate action to support exporters, emphasizing the need to reduce regulatory barriers, accelerate permitting processes, and improve trade diversification efforts. Without targeted policy changes, they warn that businesses will struggle to remain competitive, leading to further job losses and economic strain.

Critics, however, warn that corporate lobbyists are using the trade dispute to push deregulatory goals rather than prioritizing immediate relief for affected businesses.

(States where Canada is the top trading partner. Source: Canadian Chamber of Commerce)

Trade Diversification: Too Little, Too Late?

For years, Canada has discussed reducing its reliance on US trade, but little action has followed. Now, leaders are scrambling to find alternatives.

BC is fast-tracking mining approvals, Quebec is revisiting a rejected liquified natural gas project, and Ontario has floated a “Fortress Am-Can” strategy to lock in US critical mineral dependence. Yet, these efforts lack federal coordination.

With tariffs paused but not cancelled, businesses remain in limbo. Ottawa’s response has focused on diplomatic lobbying, while trade groups warn that uncertainty is stalling investment.

Talk of retaliatory tariffs has gained traction. Ontario Premier Doug Ford has suggested targeting US electricity exports, emphasizing Canada’s leverage. However, trade experts warn that retaliation could raise consumer costs in Canada, increasing prices on essential goods.

Canada’s Lack of Leverage

Unsurprisingly—and, depending on who you ask, perhaps correctly—Canada has prioritized appeasement over direct countermeasures. While key US governors and business groups oppose Trump’s tariffs, Ottawa has struggled to leverage these allies in any meaningful way to influence Washington’s decision-making.

Tariffs are not just economic weapons but tools of political coercion, pressuring Canada into alignment with US policies on border security, immigration, and energy. With few viable options, Ottawa faces increasing pressure to make further policy concessions.

Canada entered this trade dispute unprepared, and its response has done little to shift the balance of power. While officials scramble for solutions, it is ultimately Washington—the dominant force at the watering hole—that will dictate the terms of any resolution.