How seriously should we take Trump's tariff threat, and how could it affect Canadians? | CBC News (2024)

Natalie Stechyson · CBC News

· Posted: Nov 26, 2024 1:24 PM EST | Last Updated: November 26

Donald Trump has threatened to impose a 25 per cent tariff on all products entering the country from Canada and Mexico.

The U.S. president-elect made the assertion Monday on his social media platform Truth Social, saying the tariff will be one of his first executive orders when he takes office Jan. 20as part of his effort to crack down on illegal immigration and drugs.

The news left politiciansscrambling, sent the loonie diving, and had economists warning of a catastrophic impact, saying the move could fuel inflation and haveacritical effect on supply chains.

But how could all this affect you? Is it a serious threat? And while we're asking ... what even is a tariff?Listen, no judgment here. Grabacoffee.

WATCH | How Trump's tariffs threat couldaffect Canada:

What's a tariff?

Tariffs are a tax on imports, typically charged as a percentage of the price a buyer pays a foreign seller. In the United States, tariffs are collected by Customs and Border Protection agents at 328 ports of entry across the country.

For example, the tariff on passenger cars is 2.5 per cent; on golf shoes, it is six per cent.

Tariffs can be lower for countries that have trade agreements with the United States. Most goods can move between the United States, Mexico and Canada tariff-free because of theUnited States-Mexico-Canada Agreementthat came into effect during Trump's first term in office and replaced the North American Free Trade Agreement.

Who pays them?

Trump insists that tariffs are paid for by foreign countries. In fact, itis importers — American companies — that pay tariffs, and the money goes to the U.S. Treasury.

However, companies typically pass the increased costs to their customers in the form of higher prices. That's why economists say consumers usually end up footing the bill for tariffs.

Tariffs can hurt foreign countries by making their products pricier and harder to sell abroad.

How could the hike affect Canada's economy?

The U.S. isCanada's largest trading partner. About60 to 70 per cent of the totalityof Canada's trade is with the United States, said Ian Lee,associate professor at the Sprott School of Business at Carleton University inOttawa

Leesays Trump's proposed U.S. tariffs on Canadian products would be "catastrophic"to Canada'seconomy and currency. Two-thirdsof Canada's GDP is dependent on trade, he told CBC News Network Monday evening.

According to Canada's State of Trade report for 2024,exports alone support nearly 3.3 million Canadian jobs— about one in six.Just under two million jobs in Canadaare dependent on exports to the U.S., Lee explained.

"Theconsequences are going to be devastating for Canada," Lee said."There's nowayof sugar-coating this, this is just completely bad news."

The Bank of Canada said Tuesday that if Trump follows through on the threat, it would impact both economies.Economists say it could fuel inflation, suppress growth and distort the trajectory of interest rates in Canada.

What sectors would be mostaffected?

Trump's tariff threats are broad and include oil imports,Reuters reports.Canadaand Mexico are the top sources of U.S. crude oil imports, together accounting for nearly a quarter of the oil that U.S. refineries process into fuels like gasoline, diesel and heating oil, according to data from the Department of Energy.

According to the U.S. CensusBureau, oil and gas were the top U.S. imports from Canada in 2023, followed by transportation equipment.

Flavio Volpe, president of the Automotive Parts Manufacturers' Association, told CBC NewsNetworkTuesday that a 25 per cent tariff would be so catastrophic that it would make being in business "pointless."

He said supply chains in the North American auto industry are so integrated that by the time a vehicle gets in the hands of the customer in Canada or the U.S., the parts have been across the border seven or eight times.

"There is no border in automotive."

WATCH | How the proposed tariff would affect the auto industry:

Will Canada fight it?

Prime Minister Justin Trudeau and the country's premiers will hold an emergency meeting on Wednesday to discuss the threat of the steep new U.S. tariffs and devise what he called a "Team Canada" response.

On Tuesday, Trudeau said he had a good call with the U.S. president-elect Monday night, noting the effective connections between the two countries.

Trudeau also spoke with Ontario Premier Doug Ford, who chairs the premiers' association known as the Council of the Federation, as well as with other premiers last night.

Ford had written to Trudeau requesting an urgent meeting to discuss a united approach to everything from trade and border security to energy, defence and cross-border supply chains.

On Tuesday, Ford saidthe threatfeels"like a family member stabbing you right in the heart." He added Canada would have no choicebut to retaliate if the incoming Trump administration goes through with the tariff.

Meanwhile, the Canadian Chamber of Commerce saidCanada needs to urgently adapt its approach to trade talks with the U.S. The chamber's president and CEO Candace Laing said in a Tuesday statement that "being America's 'nice neighbour' won't get us anywhere."

Should we take the threat seriously?

This isn't the first time Trump has made late-night declarationsthat stirred up a lot of reaction.

Canadian Innovation Minister François-Philippe Champagne saidMonday thatthey take Trump'sthreatseriously and will begin discussions on topics such asthe effect it will have on the U.S. economyand, in particular, the energy sector.

Trump isn't president for another twomonths"so we still havea number of weeks to engage," he said.

"Bottom line,we will do whatwe alwaysdo and stand up for Canadaandstand up for the workers."

WATCH | Windsor mayor says he's taking threatseriously:

Gordon Giffin, the former U.S. ambassador to Canada, told CBCNewsNetwork Tuesday that it's Trump'sstyle to make bold declarations at night on social media.

"Myinstinctis— based on no facts, obviously— isthatthis is intended to cause action and activity in the two-month interim between now and the time thathe takesoffice," Giffin said.

In Windsor, Ont., where the economyis deeply tied to cross-border trade and the automotive industry,Mayor Drew Dilkenscalled for a strong Canadian response to what is "likely a negotiating tactic"by Trump.

"There's lots of jobs at stake if this isn't done correctly."

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