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Canada’s U.S. tariff retaliation will weaken growth: Study
Among provinces, Ontario and Quebec face the largest impact from the escalation of the trade war
Tractor-trailers on the Blue Water Bridge, spanning the Saint Clair River and connecting Port Huron, Mich., to Sarnia, Ontario. (Brett Gundlock/Bloomberg)
Key Takeaways:
- Canada will impose 15% to 50% countertariffs on C$27.5 billion of U.S. goods Sept. 8 in response to new U.S. tariffs.
- Oxford Economics said the retaliation may aid some manufacturers but will raise costs, weaken growth and increase consumer and producer prices.
- Canada paired the tariffs with a C$7.5 billion support package, though Oxford said it will not fully offset the economic drag.
Canada’s planned retaliation against U.S. tariffs may help protect some domestic manufacturers, but it will increase costs and leave many industries worse off, according to a study from Oxford Economics.
The countertariffs, scheduled to take effect Sept. 8, will apply import taxes of 15% to 50% on several hundred products worth about C$27.5 billion ($19.8 billion) in annual U.S. shipments to Canada. The list includes machinery, paper, furniture, plastics, steel and aluminum.
Prime Minister Mark Carney pledged the retaliation after U.S. President Donald Trump imposed new 50% tariffs on roughly $20 billion worth of Canadian goods on Aug. 22.
The move is meant to protect Canadian producers and help them bolster their domestic market share, but that comes at a cost, the Oxford study warns.
“Canada’s new retaliatory tariffs will help some industries but hurt most and weaken economic growth across the country by raising costs for producers and consumers,” economists Tony Stillo and Michael Davenport wrote.
Among provinces, Ontario and Quebec face the largest impact from the escalation of the trade war because of their concentration of affected manufacturers, while the Maritime provinces and British Columbia will also see pressure as higher prices and weaker household purchasing power weigh on their services-heavy economies.
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Three oil-producing provinces — Alberta, Saskatchewan and Newfoundland and Labrador — face relatively smaller impacts, Oxford said.
Stillo and Davenport estimate the combined effect of the US tariffs, Canadian retaliation and federal support programs will reduce output by about 0.3% relative to its baseline 2027 forecast.
They calculated the retaliation will raise Canada’s effective tariff rate on the U.S. by 2.7 percentage points to 5.1%. U.S. iron and steel products are the largest product category facing higher tariffs — items that in many cases already have 25% countertariffs, but will see that rate doubled.
The effective U.S. tariff rate on Canada is now 6.9%, Oxford said.
Carney’s government is pairing the countertariffs with a C$7.5 billion federal support package to cushion some of the impact on businesses and workers harmed by the trade war.
“Federal fiscal relief will briefly cushion the negative economic impact but won’t offset the overall drag from the new bilateral U.S.-Canada tariffs,” Stillo and Davenport wrote.
The increase in the tariff rate will also cause consumer and producer prices to rise, partly offset by the disinflationary impact of the U.S. tariffs, the study found. It estimates the countertariffs will cause consumer prices to rise 0.5 percentage points above the baseline forecast in 2027, while producer prices rise 0.2 points.
