Measure could trigger trade war if implemented
The prospect of the United States imposing tariffs on Canadian goods as early as next month has sparked concerns about economic fallout on both sides of the border.
RBC assistant chief economist Robert Hogue cautioned that a sweeping 25% tariff remains unlikely but could have far-reaching consequences if implemented.
Hogue explained that such tariffs would raise effective rates in the US to more than 12%, directly impacting consumer prices.
“This time around, US consumers would not be immune to the impact,” said Hogue.
He described the situation as a downside risk that, while not yet a central scenario for RBC Economics, is becoming harder to ignore.
Drawing comparisons to previous tariffs on China under the Trump administration, Hogue said those measures failed to reduce trade imbalances and questioned their strategic logic.
“Tariffs, especially against China, did not do anything to balance the trade deficit,” he noted, emphasizing that Canada’s close integration with US markets makes its economy particularly vulnerable.
Canada’s reliance on trade with the US was a central theme of Hogue’s address during the Canadian Pensions and Benefits Institute (CPBI) annual Economic Outlook.
He highlighted the role of exports and imports in sustaining jobs, government revenues, and economic activity, pointing to the automotive sector as a prime example of cross-border integration. Components for vehicles frequently cross the border multiple times during production, and tariffs would inflate costs and disrupt these supply chains.
"This would make costs balloon and would render the entire supply chain completely uncompetitive," Hogue said, adding that the ripple effects would harm not just Canadian manufacturers but also US firms dependent on Canadian inputs.
Politically, Hogue suggested that tariffs might appeal to certain voter bases but warned of potential backlash in swing states that rely heavily on trade with Canada. These states are key to US supply chains and economic stability, raising questions about the political calculus behind such measures.
Despite these risks, Hogue acknowledged that potential exemptions could soften the blow if tariffs were enacted. He identified energy and intermediate manufacturing goods as likely candidates for exceptions, noting that the final impact might not be as severe as feared.
However, he described the broader situation as perplexing. Without oil, the US runs a trade surplus with Canada, which he said underscores the disconnect between economic realities and political rhetoric.
As the tariff debate unfolds, what do you think about its potential impact on US-Canada trade relations? Share your thoughts in the comments below.
