How do Trump’s tariffs affect Canadian business? We answer your questions

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The tariffs announced by U.S. President Donald Trump have upended decades of free trade in North America, causing chaos on both sides of the border.

The swinging pendulum of the President’s off-again, on-again threats has also stirred confusion. We asked Globe readers what questions they had about tariffs. Our reporters, who’ve been in the thick of it all, answered.

This Q+A is part of a series that tackles the varying impacts of the trade war. In the political instalment, reporters Nathan VanderKlippe and Steven Chase look at questions such as the earnestness of Trump’s threat to make Canada the 51st state, and what happens to tariff negotiations in the midst of an election.

In the personal finance instalment, columnist Rob Carrick and reporter Mariya Postelnyak get into questions such as how tariffs could impact retirement savings, mortgages and interprovincial trade barriers.

Here, our business reporters parse how tariffs could hit various sectors of the economy and businesses, from the auto industry to oil. This Q+A has been edited for clarity and length.

What we can expect from tariffs

How do tariffs work?

Economics reporter Mark Rendell: Tariffs, also known as customs duties, are a kind of tax placed on imports crossing the border into a country. They’re paid by the company importing the product and are typically calculated as a percentage of the value of the imported goods. Different products are subject to different tariff rates. In Canada, many goods cross the border tariff-free, although some sectors, notably agriculture, tend to have higher tariff rates. Customs officials collect the duties, which in Canada are due within a month of a product crossing the border.

While importers are responsible for paying the duty, the question of who bears the cost of the tariff is more complicated. Sometimes exporters eat the cost by offering a lower price to their foreign buyer to stay competitive. Importers sometimes eat the tariff in their own profit margins. Often the cost of the tariff is passed along to the end consumer in the form of higher prices. Where the burden falls ultimately depends on the supply and demand dynamics of a given market.

What is the expected inflationary impact of the tariffs? And what will the Bank of Canada do about interest rates if demand slows?

Rendell: It’s not U.S. tariffs that push up inflation in Canada – it’s the broader effects of a trade war. From a Canadian perspective, prices will rise for three reasons: Ottawa’s retaliatory tariffs will increase the price of targeted U.S. goods; the depreciation of the loonie (which has fallen to around 70 U.S. cents from 74 cents in September) will make all U.S. imports more expensive; and Canadian companies facing supply chain disruptions could pass these costs along to their customers. The inflationary impact will depend on how the trade war progresses, how these different forces interact, and how the Bank of Canada responds to the jump in import prices.

The Bank of Canada is in a difficult spot. A trade war will slow the Canadian economy but raise prices. That means the central bank can’t cut interest rates as aggressively as it would in other economic downturns without risking reigniting inflation, which was only recently tamed. BoC Governor Tiff Macklem has said the bank needs to “proceed carefully” with future rate cuts, and financial markets are currently pricing in only two more rate cuts this year, which would take the policy rate to 2.25 per cent.

If the Canadian dollar falls to 65 cents, aside from the fact that our imports would be more expensive, could U.S. tariffs otherwise have a positive impact on the economy?

Rendell: The deprecation of the Canadian dollar is a mixed blessing. It makes U.S. imports more expensive and adds to inflation in Canada. But it also helps dampen the impact of tariffs on Canadian exporters. In effect, as tariffs push up the price of Canadian goods for U.S. buyers, a weaker loonie helps offset that competitive disadvantage. This is one of the reasons economists refer to the floating exchange rate as a shock absorber.

This is not to say U.S. tariffs are helping the Canadian economy. They unequivocally hurt Canada’s many export-oriented firms. And while a depreciation of the loonie may offset some of this pain, it hammers importers and Canadian consumers who have to pay more for U.S. goods.

Currently, many economies are in trouble. If Trump’s tariffs escalate into a worldwide trade war, could that lead us into another Great Depression?

Rendell: When the U.S. Congress raised the average tariff on imports by around 20 per cent in 1930, the world economy was already tanking in the wake of the Wall Street crash the year before. The tariffs made the Great Depression worse, but they didn’t cause it.

Fast-forward to today, the world economy is ticking along at a relatively healthy pace, albeit with pockets of weakness, notably in Europe. A broad-based trade war, where the U.S. imposes tariffs on its trading partners and they retaliate, will hamper growth and push up inflation. But few economists are predicting a shock like the Great Depression.

Of course, some countries will be hit harder than others. Unfortunately, Canada is near the top of that list. Moreover, a lot depends on how far Mr. Trump goes in upending the global trading order.

Moving away from U.S. business

Could Canada realistically diversify its trade portfolio and become less reliant on the United States in the near future? Are there any concrete steps we can take over the coming months and few years to shift many of our exports toward friendlier and more reliable partners?

Consumer affairs reporter Mariya Postelnyak: Canada is pretty well positioned with respect to diversification. Mahmood Nanji, a former associate deputy minister at the Ontario Ministry of Finance, told me the country has access to a huge international market, with 15 free trade agreements. In fact, it’s the only country in the G7 that has a free-trade agreement with all of the members.

Through those agreements, Canada has market access to countries with 60 per cent of the world’s GDP and 1.5 billion citizens.

But many businesses have gotten used to relying on U.S. trade since it is ultraconvenient. Breaking into new markets takes time – typically 12 to 18 months, according to Mr. Nanji.

Shifting exports to friendlier countries would require a shift in the mindset of businesses and additional support from Canadian governments such as trade promotion, making B2B connections and further financial assistance.

Does removing interprovincial trade barriers really result in more revenue than what’s lost by tariffs?

Postelnyak: The short answer? No.

The latest estimates suggest that removing interprovincial trade barriers will give Canada’s GDP a boost of around 4.4 to 7.9 per cent. According to one economist, that translates to an economic boost of roughly $200-billion.

On the tariff front, reports estimate that the duties threatened by Donald Trump would result in a 2.5 per cent to 3 per cent decline in Canada’s GDP. Looking at these estimates side by side it might seem like removing interprovincial trade barriers entirely offsets the costs of tariffs. But it’s not so simple.

Experts I spoke with generally say that liberalizing internal trade won’t compensate for lost international trade because Canada’s economy heavily depends on exports beyond its borders. Canadian goods exports to the U.S. make up about 20 per cent of our GDP. The economic impacts of dismantling this trade relationship are far-reaching.

We should also remember that many of the studies looking at the impacts of removing internal trade barriers examined this move as complementary to our existing trade relationships. Not as a substitute.

That said, taking down internal barriers would most definitely give many Canadian businesses – from auto manufacturers to contractors – a sizable boost, especially now. The more we can increase competition internally, the more we enhance productivity, the more we generate growth and create jobs.

How will tariffs affect the job market?

Future of work reporter Vanmala Subramaniam: This depends on the extent to which the U.S. imposes tariffs on Canadian imports. Currently, the workers vulnerable to being laid off are in the steel and aluminum industries because both have borne the brunt of the trade war.

If the tariffs are broadened to include most Canadian imports by the U.S., you can expect that the layoffs will start seeping into other sectors. Recently, a University of Calgary economist estimated that broad-based tariffs could push job losses to roughly 600,000 – the unemployment rate could spike to 10 per cent. A more conservative estimate of layoffs, from CIBC economists, predicts that tariffs on most Canadian exports to the U.S. could eventually result in 350,000 job losses.

Tariffs’ impact on oil exports

What would be the impact on world oil prices if Canada withheld its oil exports to the U.S.?

Sustainable finance reporter Jeffrey Jones: Shutting off the taps to the U.S. would wreak havoc on oil markets in Canada, the United States and around the world, says Rory Johnston, founder of Commodity Context. Canada exports more than four million barrels of crude a day to the U.S., roughly 4 per cent of global demand. The oil supplies refineries in the Midwest, Rocky Mountains and Gulf Coast regions. Those plants would be forced to scramble for alternative supplies, leading to a surge in prices for both domestic oil and crude imported from OPEC and other producing countries. The U.S. would likely have to restrict its own exports. In addition, many refineries that process Canadian oil would be forced to cut production runs as their stored supplies dwindle in just a few days, triggering a spike in prices for gasoline, diesel and jet fuel and possible shortages.

Meanwhile, there is a limit to how much oil Canada can ship to overseas and domestic markets, so the loss of exports to the U.S. would back up supplies within Alberta and crush Canadian oil prices, Mr. Johnston says.

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With the recently completed Trans Mountain pipeline now operational, how hard would it be to build a parallel pipeline using the same right of way from Alberta to Burnaby, B.C.?

Jones: We have recent experience with this and it comes from the pipeline project you reference. The Trans Mountain Expansion essentially twinned a pipeline that was in operation since the 1950s. It nearly tripled the capacity to 890,000 barrels a day, but at a huge cost. Owing to a host of factors, including regulatory delays, the pandemic and flooding in British Columbia, the cost ballooned from an early estimate of $7.4-billion to $34-billion.

So far, that overrun is being backstopped by taxpayers. The question is, who would step up to shoulder such risks to expand the line again, even amid a more welcoming environment, when that debt is still outstanding? However, Trans Mountain is exploring ways to increase shipments from the existing line by 200,000-300,000 barrels a day. It could do that by adding a drag-reducing agent to oil and building more pumps along the line, Reuters reported early this month.

Can Canada not buy a fleet of tankers to ship crude oil to overseas markets?

Jones: Canada could buy tankers, but currently there is no need to do so as the global fleet is considered sufficient. According to a report from Congress.gov in the United States, there are about 7,500 tankers of various classes, almost all owned by independent operators. The buying and selling of seaborne crude is active, as it is a fungible commodity.

Rather than ocean transport, Canada’s problem lies in limited pipeline capacity to get crude to export points where it can be loaded onto tankers. The Trans Mountain pipeline terminus at Burnaby, B.C., is newly expanded, but Western Canadian oil producers still face restricted access to markets outside of the U.S.

Is it possible for the Prime Minister to force Alberta’s Premier to use energy as a method to counter U.S. tariffs?

Jones: There are two ways to answer this: Can Ottawa force Alberta to use energy as a weapon in the trade war? But also, should it?

If it means blocking oil and gas from crossing the international boundary, the federal government has some legal authority to do so. Alberta and other provinces have the power to regulate energy production within their jurisdictions. Ottawa, meanwhile, has authority over international trade in energy, under more than one piece of legislation.

When asked if the government might use it, Foreign Affairs Minister Mélanie Joly has said only that “everything is on the table.” However, Alberta Premier Danielle Smith is dead set against such a move involving the lifeblood of her province’s economy. She has warned that using oil as a weapon would cause a national unity crisis. To be sure, a bitter domestic battle over this issue, in the courts and in public, would weaken efforts to take on Donald Trump’s trade threats as a unified Team Canada.

Canada’s auto industry

What benefit does a one-month delay give the Big Three automakers?

Transportation reporter Eric Atkins: I am not sure the tariff delay until April 2 offers any benefit to the U.S.-based auto makers, other than a short stay of what the companies have said is a crushing tax. Planning and moving production is a costly months- or years-long process for car makers.

Despite this, Trump’s people said the 30 days would give the auto makers time to plan to move factories home. Additionally, April 2 is the date on which European and Asian car makers will face tariffs, so the reprieve might have been timed to coincide with that, which I guess is a small bone to toss the Detroit 3.

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If our auto industry is crippled, and production moves en masse to the U.S. over the next five years – can we not invite BYD from China or other brands to build factories in Canada and start selling Chinese cars here?

Atkins: As far as I know, BYD or any other brand, is already welcome to make cars here. But they don’t. Reasons could include Canada is a small market, and relatively expensive in which to operate compared to Mexico, which is where BYD was planning to build a factory. And Trump’s tariffs would make it unfeasible for BYD to make cars in Canada to sell into the U.S. BYD was eyeing a Canadian factory but Canada’s 100-per-cent tariffs on Chinese electric cars, which were enacted in 2024 and mirrored a move by the U.S., ended that.

Why isn’t the government working with Ford and Chrysler to tool up the idle Oakville and Brampton assembly plants? Couldn’t those cars be sold to Canadians?

Atkins: This is a big question. Simply put, Ford and Stellantis, owner of the Chrysler brand, closed the plants to retool them to make electric or hybrid vehicles and those plans have changed amid slipping demand for EVs. Trump’s move to kill the EV mandate will not help. Nor will his tariffs.

The federal and Ontario governments promised taxpayer aid for the projects, $590-million in Oakville and up to $1-billion in Brampton. Governments are keen to see the plants reopen but it is not their call.

As for running the factories to supply the Canadian market alone, Canadians buy about 1.8 million cars a year – not enough to support a walled-off domestic industry that relies on global supply chains and markets. Most of the 1.5 million cars made in Canada in a year are sent to the United States. Same for the Ford and Stellantis engines.

Rising lumber tariffs

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With tariffs on lumber about to rise (again), why doesn’t Canada just mirror the open-bidding system the U.S. uses to set fees to harvest trees on their federal lands?

Business reporter Brent Jang: Canadian forests are mostly on public land, where buyers pay “stumpage fees” to provincial governments for the right to log. The Canadian government argues that revisions to the stumpage system over the years were designed to follow the free market, emphasizing that international panels have consistently ruled in favour of Canada as a fair trading partner.