Photo: Gage Skidmore, CC BY-SA 3.0, via Wikimedia Commons
New research by Desjardins has revealed which Canadian industries will be most hit by tariffs imposed by US President Donald Trump.
Economists analyzed Canadian industries based on their exposure to US demand and found that sectors such as auto and oil, where two-thirds of revenues depend on US exports, are potentially at risk.
According to the Desjardins report, the Canadian industries most at risk from tariffs are:
However, the report also considered whether the US is self-sufficient in those goods, and if there are viable substitutes, either domestically or from other countries.
“If tariffs are universal – 10% for all countries – the substitution risks decrease,” said Florence Jean-Jacobs, principal economist at Desjardins Economics. “Overall, we found autos and oil are more likely to be exempt since the US has limited alternative supply.
Jean-Jacobs noted that previous tariffs on aluminum under the Trump administration reinforced this risk. At the same time, manufacturing sectors in Canada, such as wood products and plastics, also warrant close attention.
Beyond direct impact, potential US tariffs have cascading effects across supply chains, according to the Desjardins report. Trade-dependent industries like wholesaling and transportation would suffer, along with suppliers to manufacturing, such as forestry, agriculture, and fishing.
Tariffs on Canadian imports could also create major challenges for US consumers and businesses, particularly in the oil and automotive sectors. The US does not produce enough crude oil to meet its domestic needs, and 58% of its oil imports come from Canada.
Jean-Jacobs noted that imposing tariffs on Canadian oil could drive up energy prices, contradicting the Trump administration’s goal of keeping costs low for American consumers.
The US automotive industry is also equally reliant on cross-border trade. Over 50% of Canada-US trade involves parent companies with operations in both countries, while one-third of the US auto supply chain depends on Canadian imports.
Additionally, a fifth of US vehicle production relies on imported intermediary inputs. Tariffs on auto parts and materials from Canada could disrupt production, increase costs, and ultimately make vehicles more expensive for American consumers.
On January 28, White House representatives said Trump remains intent on making good on his promise to enforce tariffs on Canada and Mexico on February 1.
Trump had set the deadline for 25% tariffs on imports from the two countries unless they stop the flow of immigrants and drugs to the US.
“We still don’t know the extent or severity of tariffs, nor who will be impacted, as that remains fluid,” Jean-Jacobs told Insurance Business. “The inauguration decree called for analysis and investigation to be completed by April 1, so I wouldn’t take February 1 as confirmation.”
Outgoing Prime Minister Justin Trudeau has promised a “robust” response to the tariffs, saying “nothing is off the table.”
Given the potential rise in operating costs, Jean-Jacobs pointed out that large multinational corporations, especially in the automotive and manufacturing industries, could put pressure on their representatives in Congress or directly lobby the Trump administration for exemptions.
Bank of Canada Governor Tiff Macklem has said a tariff war would push inflation higher. But could it tip the Canadian economy into a recession?
Jean-Jacobs said Desjardins researchers considered multiple scenarios due to ongoing uncertainty.
“Our baseline forecast did not predict a recession, assuming 10% tariffs on all imports and implementation no earlier than late 2025,” she explained. “While this would slow economic growth, it wouldn’t necessarily trigger a downturn.
“However, our worst-case scenario involves 25% tariffs imposed sooner and specifically targeting Canada and possibly Mexico. In this case, Canada would likely fall into recession, with job losses and unemployment rising above 8% from the current 6.7%.
“That said, we believe exemptions are likely, making this extreme scenario less probable. A more realistic outlook suggests tariffs taking effect in late 2025 with exemptions for key sectors like oil and automotive.”
For Canadian businesses, however, the key is to reduce their reliance on the US market and find ways to be more competitive through investments and diversification.
“Canada has trade agreements and strong ties with Asia, Europe, and Latin America, making diversification essential for businesses heavily reliant on US revenues,” Jean Jacobs said.
“Additionally, Canadian businesses should better leverage the domestic market. Some Quebec exporters, for example, focus on the US but overlook opportunities in Western Canada. Strengthening interprovincial trade can maximize growth.
“Finally, tariffs create cost disadvantages, so businesses must compete on more than price. Investing in modernization, innovation, and high-quality products will help companies stay competitive and transformative.”
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