As Canadians wake up to the news that Donald Trump will return to the White House, his protectionist policy proposals are drawing renewed attention to how a second Trump administration could reshape Canada–U.S. economic ties. Business leaders and economists are scrutinizing the possible consequences of broad tariffs, and policymakers are already weighing how to protect cross-border trade and supply chains.
Some Canadian business groups have voiced concern about Mr. Trump’s pledge to impose a universal 10% tariff on all U.S. imports. A recent Canadian Chamber of Commerce report cited by industry observers estimated that such tariffs could shave roughly $30 billion per year off the Canadian economy. That prospect is particularly consequential given that more than 77% of Canadian exports flow to the United States.
What’s in store for Canada’s manufacturing sector
Canada’s manufacturing sector is likely to be among the most affected if broad tariffs are implemented. Dennis Darby, president and CEO of Canadian Manufacturers and Exporters, describes manufacturing as the “most trade-exposed” sector in Canada. The intricate web of cross-border production — where parts, inputs and finished goods move frequently between Canada and the U.S. — means that new trade barriers could disrupt established supply chains and production plans.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview. He acknowledged that managing the relationship under a new administration will be more complex than under a Democratic administration, but emphasized industry readiness to engage and respond.
Inflation worries grow
American economists have also warned that broad tariffs could feed higher inflation in the United States and potentially push the American economy toward recession — developments that would inevitably have spillover effects in Canada. Tariffs typically raise the cost of imported goods and inputs, which can translate into higher consumer prices.
Darby points out that consumers in both countries would ultimately bear the burden of higher prices: “A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for.” He also noted that tariffs not only make finished goods more expensive but also increase the cost of inputs used by U.S. manufacturers, potentially altering where production takes place.
Echoing those concerns, TD economist Marc Ercolao warned that full implementation of the proposed tariff policy could reduce Canadian export volumes to the U.S. by nearly 5% by early 2027 versus current baseline forecasts. That projected decline highlights how trade policy changes can quickly affect export-oriented industries and the broader economy.
How might Canada respond to tariffs?
Canadian policymakers would face difficult choices if tariffs were enacted. Retaliatory measures could protect some domestic industries but would also raise costs for Canadian producers and reduce import volumes. According to analysis referenced by economic observers, slowing import activity can blunt some negative trade impacts on GDP and potentially prevent a technical recession, but it may still leave the economy in an extended period of stagnation.
Since the Canada–United States–Mexico Agreement (CUSMA) came into effect in 2020, trade between Canada and the U.S. has surged by 46%, according to the Toronto Region Board of Trade. With the agreement scheduled for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing urged strong government-to-government engagement to preserve and enhance this critical bilateral economic partnership.
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” Laing said. She argued that resisting new tariffs and trade barriers will help avoid higher prices for consumers and protect resilient cross-border supply chains that underpin shared economic security.
Looking ahead, Canadian businesses and policymakers will need to coordinate closely with U.S. counterparts, monitor evolving trade proposals, and prepare contingency plans to shield supply chains and consumers. The choices made over the next months and years—on tariffs, trade talks and supply-chain resilience—will determine how deeply a shift toward protectionism would affect Canada’s economy and its longstanding trading relationship with the United States.