Editor's note: This article originally appeared on ParliamentToday, a Village Media newsletter devoted exclusively to covering federal politics.
Tariffs will be imposed on both American and Canadian goods crossing the border starting Tuesday after the United States kick-started a trade war on Saturday.
Here’s what you need to know:
Why is this happening?
During the United States presidential election, Donald Trump campaigned on imposing 25 per cent tariffs on Mexico and Canada. He cited the movement of drugs, particularly fentanyl, and illegal immigrants across the border as a reason to crack down and renegotiate trade relationships with both countries.
Since then, the Canadian government has been trying to thwart tariffs by investing $1.3 billion in new border security measures in an effort to appease the new U.S. president. Additional measures to prevent the trafficking of fentanyl were put in place as well, even though the federal government says less than one per cent of fentanyl and illegal crossings into the United States come from Canada.
On Friday, Trump issued an executive order making good on his campaign promise, placing a 25 per cent tariff on all Canadian goods with the exception of energy, which will be tariffed at 10 per cent.
The tariffs go into effect Tuesday.
“The challenges at our southern border are foremost in the public consciousness, but our northern border is not exempt from these issues,” the executive order says. “Immediate action is required to finally end this public health crisis and national emergency, which will not happen unless the compliance and co-operation of Canada is assured.”
It’s important to note that by framing tariffs as a response to a public health and security emergency, Trump was able to circumvent the Canada-U.S.-Mexico Agreement (formerly known as NAFTA). But senior Canadian government officials confirmed Sunday that they consider Trump’s tariffs a violation of U.S. trade commitments and they will pursue the appropriate legal recourse.
As a result of the U.S.’ actions, Canada announced retaliatory tariffs — 25 per cent on about $30 billion worth of American goods as of Tuesday, plus 25-per cent tariffs on another $125 billion in goods following a 21-day consultation period.
At a news conference over the weekend, Prime Minister Justin Trudeau accused Trump of “splitting” Canada and the U.S., who have been close trading partners for centuries.
“If President Trump wants to usher in a new golden age for the United States, the better path is to partner with Canada, not to punish us,” Trudeau said. “It doesn't have to be this way.”
How do tariffs work?
Tariffs are fees imposed by the federal government on businesses or people that import goods from other countries. The idea is that it encourages companies to buy domestic products and makes it harder for foreign countries to compete in the sector.
There will likely be a trickle-down effect, with companies choosing to raise prices and put the cost of bearing tariffs onto consumers so the fees don’t impact their bottom line.
For example, if a U.S. company imports an item from Canada that costs $100, it will have to pay $25 to the government as a result of the tariff.
The company could then increase the price of their final products to make up the cost.
Alternatively, it could find a domestic supplier, if possible, to avoid the tariff.
What is covered under the new tariffs?
The U.S. tariffs impact most Canadian imports to varying degrees.
Canada is taking a phased approach, with only some American goods impacted as of Tuesday. They include:
- Beer, wine and spirits;
- Coffee;
- Appliances;
- Clothing and footwear;
- Pulp and paper;
- Motorcycles ;
- Cosmetics; and
- Some food items like orange juice and peanut butter.
A full list is available here.
Could there be more tariffs?
Yes. Trump’s executive order notes that “should Canada retaliate against the United States in response to this action through import duties on United States exports to Canada or similar measures, the president may increase or expand in scope the duties imposed under this order to ensure the efficacy of this action.”
Canada has also said it would implement tariffs on another $125 billion worth of American imports in three weeks' time. Items that could be tariffed in this round include passenger vehicles and trucks, steel and aluminum products, aerospace products, beer, pork, dairy, and certain fruits and vegetables.
This list will be subject to a 21-day consultation period.
What other action is being taken?
Trudeau said the government will also consider non-tariff actions to encourage Trump to change his mind, including restrictions on the export of critical minerals and energy products, or blocking American companies from bidding on government contracts. However, no further details have been released.
Canada’s premiers are also reacting with action of their own.
Doug Ford, who is the chair of the Council of the Federation, said he has directed LCBO stores to remove American liquor from their shelves.
“Every year, LCBO sells nearly $1 billion worth of American wine, beer, spirits and seltzers. Not anymore,” Ford said in a statement. “As the only wholesaler of alcohol in the province, LCBO will also remove American products from its catalogue so other Ontario-based restaurants and retailers can’t order or restock U.S. products.”
Ford called an early election last week in order to get a “strong mandate” to deal with tariffs and the new U.S. president, launching his campaign in front of the Ambassador Bridge in Windsor, Ont. That race wraps on Feb. 27.
Nova Scotia and British Columbia are acting similarly, removing all U.S. liquor from stores while Nova Scotia is also doubling highway tolls for U.S. commercial vehicles.
What will this mean for the Canadian economy?
Some economists predict that Canada could be heading to a recession as a result of tariffs, with the Canadian Chamber of Commerce and other experts warning this could happen as soon as mid-2025.
Bank of Canada modelling also suggests inflation could rise in the first year.
The key factor will be the duration of tariffs, a timeline that is uncertain. Chief economists with TD say they expect to see “a sharp negative reaction in the Loonie and North American equity markets come Monday.”
They also expect inflation to rise in both countries and for vehicle costs to be significantly impacted “due to the interconnectivity on the supply chain.”
These predictions do not take into account any government stimulus packages that could be implemented. On Sunday, senior government officials said that a number of economic impact assessments have been done internally and a variety of scenarios are being planned for. However, officials refused to provide details of those analyses.
There is a slim trade deficit between the two countries, about US$45 billion in 2024, in which Canada exported more goods to the U.S. than it imported.
What do the federal Liberal leader hopefuls say?
The Liberals are in the middle of a leadership race, with a new PM to be chosen on March 9.
One of the top contenders, former Bank of Canada governor Mark Carney, said he supports dollar-for-dollar retaliation “aimed where they will be felt the hardest in the United States but will have the least impact in Canada.”
He did not specify what, exactly, that entailed.
Former finance minister Chrystia Freeland urged the government to impose $200 billion worth of retaliatory tariffs, including items like Teslas, whisky, cheese, and dairy. Tesla is notably founded by Elon Musk, a key Trump ally.
Former government house leader Karina Gould published a joint statement from all Liberal leadership candidates pledging to “stand up against these unjust tariffs.”
Ex-Liberal MP Ruby Dhalla said the federal government focus on energy exports and that, if she was chosen, she would strengthen relationships with China, India, Brazil, Japan, South Africa, the UAE, Saudi Arabia and Qatar.