Update on U.S. / Canada trade tension
Myles Zyblock
January 24, 2025
Last October, while on the election campaign trail, Donald Trump said that he would impose a 25% tariff on goods imported from Canada if he won the U.S. presidential election. His view was that Canada had failed to control the flow of drugs and illegal immigrants through its border and into the U.S. On inauguration day, President Trump provided an update saying that these tariffs might be imposed as early as February 1st.
The tariffs represent a tax on Canadian imported goods. Under the simplest scenario, this will raise the American price and lower the demand for these imported products. However, the actual impact is much more complicated since price and demand will be influenced by the interaction of many factors including currency moves, diversion towards non-tariffed countries, importer, wholesaler and retailer margins, and the prices and availability of U.S. substitutes and compliments.
The Canadian government plans to retaliate if President Trump imposes the tariffs. News sources suggest that the government’s initial list subject to a tariff represents about $38 billion dollars’ worth of U.S. imports. The list might be expanded to represent $150 billion worth of goods if the Canadian government views that a more forceful move is required.
While the precise impacts of a trade war between the U.S. and Canada are hard to quantify, any negative economic effects are probably going to be more visible in Canada. Canada exports about 20% of its GDP to America, whereas the U.S. exports only about 1% of its GDP to Canada. Investors seem to agree, as reflected by the significant weakness seen in the value of the Canadian dollar over the past several weeks. Keep in mind that markets tend to move well in advance of the economy, suggesting that a lot of the potentially bad news is already in the price.
There aren’t any more details to share at this stage. The situation is fluid so we will provide updates as necessary.
Canadian Exchange Rate: CAD/USD
Myles Zyblock
Myles Zyblock, Chief Investment Strategist
Scotia Global Asset Management
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