The trade war that United States President Donald Trump has triggered with Canada is expected to hurt businesses in both countries.
But experts say the damage to the Canadian economy will be worse, as the tit-for-tat tariffs have raised the chances of a recession.
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On Saturday, the US imposed 50 percent tariffs on $20bn worth of Canadian goods after trade negotiations between the two countries collapsed. On Monday, Trump also threatened Canada with new 50 percent levies on all car products, starting January 1.
On Tuesday, Prime Minister Mark Carney unveiled retaliatory measures against more than 700 US products, also valued at $20bn. The tariffs are tiered at 15, 25 and 50 percent, and they are slated to come into effect on September 8.
But while Canada’s efforts have sparked a surge of nationalism, experts warn the feeling might sour in the face of economic losses.
“People feel very energised by the idea of Canada standing up to Trump, and there’s a palpable sense of patriotism in Ottawa, but I don’t know how long it will last,” said Vina Nadjibulla, cofounder and CEO of the Centre for Strategic Statecraft, a nonpartisan policy think tank in Canada.
Canada’s economy is a 10th the size of its US counterpart, and the country sends about 70 percent of its exports south of the border, which makes it especially vulnerable to US trade penalties.
While the US tariffs will have a limited impact on the overall Canadian economy — the advisory firm Oxford Economics estimates they will shave 0.3 percentage points off its gross domestic product (GDP) next year — they will hurt specific provinces and sectors more significantly.
Job losses expected
Manufacturers in Quebec, New Brunswick, and Ontario will be affected the most, as will exporters in British Columbia, as they rely heavily on sales to the US.
According to Oxford Economics, those provinces are vulnerable because they produce items that are easy to substitute. Top of that list are cement, paper, wood, beverages, clothing, plastics and electronics.
Similarly, while Canada’s tariffs on the US will have a muted impact, the costs on the individual states and businesses that rely on Canadian trade will escalate.
“This absolutely is a trade war,” said Ashley Kalyn, an international trade consultant at Peacock Tariff Consulting in Toronto. “We are feeling the effects in Canada and expect upwards of 100,000 jobs to be lost.”
Kalyn told Al Jazeera that her firm has already heard that some clients are planning to shut down factories and lay off workers if the tariffs remain in place. “That’s how real this is,” she said.
Tensions have continued to escalate this week after Trump announced on Thursday that the US federal government will now refer to Lake Ontario as Lake America, in protest against Canada.
Prime Minister Mark Carney pointed out on social media that the word “Ontario” is not Canadian but Indigenous. “The name is more than 400 years old, predating both the Confederation of Canada and the Declaration of Independence of the United States of America,” Carney wrote.
Manitoba Premier Wab Kinew also dismissed the renaming as a feeble effort. Trump had made a similar announcement last year, swapping the name “Gulf of Mexico” for “Gulf of America” amid tensions with Mexico over immigration and border security.
“You know when a rock band is really over the hill, and you see them in a casino playing some song from like 50 years ago? I think that’s the part of Donald Trump’s presidency we’re at now,” Kinew told reporters in Winnipeg. “It’s not his best work.”
A ‘permanently lower path’
Economists fear that, if relations further unravel, it could end the free trade agreement between the United States, Mexico and Canada, known as the USMCA.
That scenario would “push Canada’s economy into a recession and leave it on a permanently lower path”, warned Tony Stillo, director of Canada Economics at Oxford Economics, in a note that was shared with Al Jazeera.
The USMCA, after all, shields the majority of Canadian exports from the US tariffs. That allows the effective tariff rate against Canadian goods — the overall average — to remain at 5.1 percent, among the lowest globally.
Even with the tariffs that kicked in last weekend, the effective tariff rate on Canadian exports is estimated to rise to only 6.9 percent.
“A war of attrition will help neither economy. But Canada is showing itself to be very resilient,” Matthew Holmes, executive vice president and chief of public policy at the Canadian Chamber of Commerce, told Al Jazeera in an email.
He added that he hopes both sides will seek a detente in the trade war: “We trust that the goal of the negotiators is to get back to the table in due time, not to retaliate indefinitely.”
Car industry braces for impact
Another area of concern is the car-making industry. Nearly 18 months ago, early in his second term, Trump unleashed 25 percent tariffs against cars and car parts from Canada, with an exemption for parts that met USMCA conditions.
Manufacturers and dealerships had largely managed to absorb the increased costs, helping to keep the prices of new vehicles relatively stable.
But Trump’s threats to double automobile tariffs to 50 percent, starting in 2027, are expected to significantly undermine the cross-border car industry, according to experts.
Bernard Yaros, the lead US economist at Oxford Economics, said in an analysis shared with Al Jazeera that the car industry’s buffers are “wearing thin”.
Moreover, the 50 percent tariffs will likely harm carmakers on both sides of the border. Yaros said the extra taxes would “disproportionately hurt” Midwestern states such as Michigan, Ohio and Indiana whose auto sectors depend on Canadian-made components.
The timing of the tariff increase is significant too, Yaros added. The automobile tariffs will spike months after the US midterm elections are complete.
That allows Trump to be “less fettered” by domestic politics, Yaros said.
Without the fear of angering the electorate, Yaros suggested Trump may feel more free to take aggressive measures on trade. That, in turn, could potentially set “the stage for a more volatile tariff environment during the final two years of Trump’s second term”, Yaros said.
Implications for others
Within Canada, Trump’s latest attacks are also raising internal political divides.
Ontario Premier Doug Ford has advocated for a strong-armed approach to combatting US trade measures. He has warned that “everything is on the table” in terms of retaliation, including cutting off electricity and critical mineral exports to the US.
But other provinces have been more reluctant to embrace scorched-earth tactics. Alberta and Saskatchewan have turned down suggestions to add export taxes to natural resources, such as oil and potash, major underpinnings of their economies.
Experts like Nadjibulla said the world is watching how Canada will handle its increasingly hostile neighbour to the south.
“Whether Canada is able to hold this line has implications for others as well,” said Nadjibulla.
The key date that she is watching is September 8. That’s when Canada’s reciprocal tariffs come into place.
“It’s really hard to predict where this goes,” said Nadjibulla. “The mood this week is about escalation.”
