Market Commentary from Myles Zyblock: Update on Canada-U.S. Trade Developments

Myles Zyblock

February 3, 2025

Over this past weekend, President Trump signed an Executive Order (EO) which will place a 25% tariff on imported goods from Canada (and Mexico, as well as a 10% tariff on Chinese goods). The Trump administration says it is holding Canada accountable for the unchecked flow of migrants and fentanyl across its border and into the U.S.

These U.S. measures are scheduled to go into effect on Tuesday, February 4. In the EO, there was a carve out for Canadian energy, stating that it will be subject to a lesser 10% import tax. There is also a clause in the EO which states that the United States might increase these import tariff rates in the event of Canadian retaliation.

The Canadian government immediately responded, saying that it will be imposing a 25% tariff on $155 billion (or $US 106 billion) of U.S. imports. This is expected to happen in two stages, with tax increases on $30 billion of U.S. goods scheduled for Tuesday, February 4, and the remainder being subject to increased import duties later in February.

This imminent trade war is likely to generate a lot of uncertainty among suppliers, purchasing agents, and investors. Canada appears more vulnerable based on an objective read of the economic data. Exports to the U.S. account for about 20% of Canadian GDP whereas U.S. exports to Canada represent about 1% of U.S. GDP. Based on the latest available data, we estimate that U.S. trade might be responsible for somewhere around 2 million direct and indirect jobs across Canada. Canada’s top exports to the U.S. are energy and autos, so it will be important to look here for some of the larger impacts.

While the Canadian dollar is likely to remain under pressure in the near term, with volatility likely to rise across other assets, it is important to maintain a diversified portfolio. In recent years, this approach has served investors well through the Great Financial Crisis, the European sovereign debt crisis, the global pandemic and subsequent inflation shock. It is also likely to help investors manage through this latest set of challenging global trade developments.

Myles Zyblock

Myles Zyblock, Chief Investment Strategist

Scotia Global Asset Management

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