Canada braces for repercussions as tariffs threaten key industries
Canada is preparing for the economic repercussions of newly imposed US tariffs, which could significantly impact the country’s manufacturing sector, foreign direct investment (FDI) and overall economic stability.
President Donald Trump has announced tariffs on Canadian imports, including a 25% duty on most Canadian goods, with a lower 10% rate applied to energy exports. Mexico and China face similar trade restrictions.
The action has raised fears of a potential North American trade conflict, with economic experts warning that the tariffs could drive inflation, slow economic growth and lead to job losses across multiple sectors. Canadian leaders, including government officials and industry representatives, have strongly condemned the tariffs.
The manufacturing industry accounts for roughly 9% of Canada’s GDP and constitutes 70% of its total trade with the US. Among the top 15 industries engaged in US trade, most are manufacturing-based, collectively employing 3.1% of Canada’s workforce.
The automotive, energy and primary metals industries are especially exposed, given their deep reliance on exports to the US. These tariffs are likely to increase production costs, weaken competitiveness and strain supply chains. In addition, the tariffs may incentivise companies to relocate operations from Canada to the US, further weakening Canada’s industrial base. A survey by KPMG found that 48% of 250 Canadian business leaders are considering shifting investments to the US in an attempt to lower operational costs and remain competitive.
Automotive sector under threat
Of particular concern is the automotive sector, where production is deeply integrated between Canada, the US and Mexico. Auto parts frequently cross the border many times before final assembly, so a single vehicle could incur multiple rounds of tariffs, driving up costs. These barriers threaten to disrupt cross-border supply chains, leading to logistical challenges, price hikes and shortages.
In the face of the new tariff regime, Canada must take decisive action to minimise economic risks, enhance supply chain resilience and expand trade partnerships, according to Dr Hilda Fankah-Arthur, president of the Ottawa-based Global Economic Diversification Council. The council will address these issues at its Global Economic Diversification Summit in Ottawa on May 21-23.
“While this presents a significant economic challenge, Canada has the capacity to respond effectively. The priority now is on strengthening resilience, fostering innovation and deepening global partnerships to ensure long-term economic stability,” said Dr Fankah-Arthur.
