Tariffs in Canada: The 5 Most Important Things to Know

Feb 2, 2025

New U.S. tariffs on Canadian goods could cause increased prices, job loss and even economic recession.

Written by Beth Buczynski

Lead Assigning Editor

Edited by Athena Cocoves

Assigning Editor

Written by Beth Buczynski

Lead Assigning Editor

+ 1 more

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On February 1, 2025, President Trump issued an executive order to impose 25% ad valorem tariffs on goods produced in Canada. Energy resources will be subject to slightly lower tariffs of 10%, according to the order. The U.S. tariffs will take effect on Tuesday, February 4, 2025.

The Canadian government was quick to respond, with Prime Minister Justin Trudeau announcing that Canada will impose 25% percent tariffs against $30 billion worth of American goods on Tuesday, February 4, 2025. Tariffs on an additional $125 billion worth of American goods will take effect 3 weeks later.

These actions have left many Canadians scrambling to understand what tariffs are, who pays them, and how they might affect the economy.

Here are quick answers to some of those questions.

1. What are tariffs, anyway?

At their simplest, tariffs are taxes applied to goods that are imported from a foreign country. Tariffs aren’t new, in fact, nearly all developed countries impose some kind of tariff.

There are a few main types:

Ad valorem: A percentage-based tariff applied to an item’s value (10% of a car’s price, for example).
Specific: A fixed amount per unit, regardless of the item’s price (such as, $5 per kilogram of imported cheese).
Rate quota: Lower tariffs that apply up to a certain import limit, and then trigger an increase after the quote is exceeded.
Blanket tariffs: A single tariff rate that applies across all imported goods from a specific country, regardless of the product type or value (such as, “25% on all Canadian goods”).

2. Who pays tariffs?

Tariffs are paid by the companies who import foreign goods. Tariffs are not paid by the foreign countries that export to supply the goods.

So, U.S. companies that import Canadian goods will pay the new tariffs announced by Trump. Canadian companies will pay the new tariffs announced by Trudeau.

Companies often raise their prices to offset the cost of tariffs. That’s why many experts say it’s consumers — the people who buy the end product — who actually pay for tariffs.

3. Why would a country impose tariffs?

A country may put tariffs into place for a variety of reasons, such as:

Increasing national revenue through import taxes.
Reducing a perceived reliance by limiting the consumption of goods produced outside the country.
Protecting domestic companies and jobs by making foreign goods more expensive.
To apply economic pressure on a trading partner.

4. How do tariffs affect everyday people?

Whatever the intention, tariffs often have negative consequences for consumers — in both countries involved.

Potential effects include:

Higher prices for consumers.
Job losses in industries dependent on exports.
A lack of competition, which can result in less innovation and efficiency.
Retaliation from trade partners, i.e. a “trade war.”
Global supply chain disruption and lack of access to needed goods.

Canada exports billions of dollars in goods and services to the United States each day. If demand for those goods were to suddenly dry up because American companies don’t want to pay tariffs, it could have dire consequences for the economy — including recession.

» Learn some survival strategies for times of high inflation

5. What happens if Trump implements a 25% tariff on Canadian goods?

A 25% tariff could have dire consequences and significantly disrupt trade, leading to:

A 2.6% shrink in Canada’s GDP, costing Canadian households an average of $1,900 annually, according to the Canadian Chamber of Commerce.

The loss of more than 150,000 Canadian jobs, according to analysts at Oxford Economics — although government officials in some provinces predict much higher numbers.

Potential inflation, as higher costs trickle down to consumers.

“At a minimum, a permanent tariff will cause a one-time, permanent increase in price levels,” the Bank of Canada stated in its January 2025 Monetary Policy Report. “Whether tariffs lead to ongoing inflation will mostly depend on how household and business expectations for inflation respond to tariff-related price level increases.”

The severity of the consequences depends on the type and extent of the tariffs imposed: A blanket tariff, imposed on all imported goods, would be the worst case scenario.

» Be prepared: 3 ways to spend less on food

Sources

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