How a Trade War Could Cost Gen Z Decades of Wealth

Few subjects have caused as much upheaval recently as tariffs, following U.S. President Donald Trump’s decision to impose a 25% duty on most Canadian exports and a 10% levy on energy products such as oil, gas and electricity.

Those steep measures have unsettled Canada’s economy. The resulting uncertainty has contributed to job losses in the auto sector and a slowdown in the housing market. In response, Canada has introduced retaliatory tariffs and is working to strengthen trade ties with other countries to reduce dependence on the U.S., with Prime Minister Mark Carney declaring that the Canada–U.S. trade relationship “is over.”

What exactly are tariffs?

Think of tariffs as a kind of border surcharge. When a country imports goods, its government can add an extra cost at the border. If the U.S. places a tariff on Canadian cars, for example, the importer pays a fee before the vehicle can enter the country. That cost typically gets passed on to consumers.

Governments often use tariffs to protect domestic industries by making foreign products more expensive. The idea is to encourage buyers to choose locally made goods, but when tariffs rise significantly, companies and consumers face higher prices. Suppliers lose competitiveness, and consumers ultimately pay the bill.

The greatest harm comes when tariffs apply to everyday essentials—cars, food and key materials such as aluminum and steel. These inputs affect everything from electronics and construction to medical equipment. Once tariffs hit those areas, trade tensions can escalate into broader trade wars with both immediate and long-term consequences.

Historically, severe tariff episodes between the U.S. and Canada are rare but have caused deep harm. Donald Drummond, former chief economist at TD Bank and a fellow at the CD Howe Institute, points to the Smoot-Hawley Tariff Act of the 1930s, when U.S. law sharply raised duties on more than 20,000 goods. That episode—like the protectionist period in the 1890s—ended poorly for both the United States and its trading partners. Ultimately, tariffs were reduced after the damage became clear.

Drummond notes the pattern is familiar: higher tariffs prompt retaliatory measures, triggering a feedback loop that economists sometimes illustrate as a “cobweb” of escalating responses. In the 1930s this cycle contributed to a collapse of global trade and deepened the Great Depression.

What do Trump’s tariffs mean for young Canadians?

Predicting the future is difficult, especially with policy that can change quickly. For now, the tariffs mainly target sectors such as vehicles, aluminum and steel. Drummond warns that consumers will feel immediate effects through higher car prices and increased repair costs, since many vehicles and replacement parts incorporate U.S. components.

Even cars assembled in Canada often use American parts, so extra costs per vehicle could range substantially and make ownership and maintenance more expensive. Tariffs rarely make any model cheaper; instead, they raise costs across the board.

Beyond vehicles, tariffs affect everyday affordability in many indirect ways. The 2025 Canadian Food Price Report forecasts a 3% to 5% rise in food prices, which could add roughly $800 a year to a family of four’s grocery bill. Part of this increase reflects Canada’s retaliatory tariffs on certain U.S. food products, including fresh produce and prepared items—causing familiar imports like Tropicana orange juice to become noticeably more expensive on store shelves.

Tariffs also drive up prices for electronics, appliances, home renovations and other essentials. As import costs rise, so do consumer prices, tightening household budgets and stretching discretionary spending for younger Canadians.

How tariffs could affect jobs, security and earning power for Gen Z

The impact depends on industry and career path. So far, tech and telecom haven’t been primary targets, but that could change. If Canada implements policies such as a digital services tax, further retaliation could follow, potentially pressuring sectors that employ many young people.

If export-oriented industries—manufacturing or specific high-tech fields—are disrupted, young workers may find fewer opportunities in their chosen fields and may need to pivot to sectors less tied to U.S. trade or to markets outside North America. That transition would take time and could alter career trajectories.

Freelancers and gig workers may not be directly tied to large exporters, but small businesses that rely on cross-border trade can experience ripple effects, reducing demand and opportunities.

One of the most serious risks is a potential recession. Graduating during a downturn often means weaker early-career earnings, fewer promotions and a lasting earnings gap. Research following the Great Recession found that graduates who entered the labour market during that period experienced slower wage growth and missed advancement opportunities compared with cohorts that graduated in stronger markets. With more than 1.5 million students enrolled in Canadian universities and a significant share of firms anticipating a recession, the timing could be particularly consequential for new graduates.

How can young Canadians prepare for tariff-driven uncertainty?

Drummond warns the current dispute could be more disruptive than the 2008 financial crisis. That reality calls for practical adaptation.

Young Canadians should broaden their horizons beyond the Canada–U.S. axis. Global opportunities exist across hundreds of markets, and considering careers, education and business prospects abroad can reduce dependence on a single trading partner.

Financially, diversify investments beyond U.S. markets and consider sectors that tend to be more stable, such as utilities and essential services. Build emergency savings, keep debt manageable and focus on transferable skills that can move across industries and geographies.

There may be a silver lining: a cooling economy could ease housing pressure, potentially making homeownership more accessible for some young buyers. Still, the short-term impacts—higher prices, job uncertainty and potential slower wage growth—require proactive planning and flexibility.

Read more about economy news:

• Will Canada’s economy grow in 2025?
• How to manage your finances when the economy is stressing you out
• Why are Canadians still frustrated with the economy?
• What does Trump’s election mean for the Canadian economy?