Next week, U.S. President Donald Trump is expected to implement sweeping 25% tariffs on Canada and Mexico, a move that is causing widespread concern about the potential impact on millions of jobs. The looming tariffs are poised to be the most significant trade shock Canada has faced since the Great Depression of the 1930s. Economists are sounding alarms, predicting that the tariffs could result in massive job losses across various sectors, from auto manufacturing to agriculture, and push the Canadian economy toward a recession.
Erik Johnson, an economist at BMO Capital Markets, emphasized that many sectors in Canada have a heavy dependence on trade with the United States, and the tariffs could disrupt these industries severely. With the tariffs set to take effect on March 4, Trump has reiterated this deadline multiple times, heightening the sense of urgency.
RBC economists Frances Donald and Nathan Janzen have warned that the impact of these tariffs could be far greater than the trade shocks of 2018. In that year, the U.S. average import tariff increased from 1.5% to roughly 3%, a relatively minor hike compared to the near 11% tariff rate the U.S. will impose under the new policy. This significant increase, they argue, will have much more severe consequences for the Canadian economy.
Bank of Canada Governor Tiff Macklem spoke recently to business leaders in Mississauga and Oakville, explaining that the economic shock from these tariffs would differ greatly from the downturn caused by the COVID-19 pandemic. While the pandemic induced a steep recession followed by a swift recovery, the long-term nature of the tariffs could prevent a similar rebound. According to Macklem, Canada’s economy could recover some of its losses, but the damage would be prolonged and enduring.
The Canadian Chamber of Commerce has pointed out that approximately 2.3 million Canadians hold jobs directly tied to U.S. exports, while 1.4 million Americans depend on Canadian exports. With tariffs likely to affect both sides of the border, these jobs are at serious risk.
Job Losses: Which Sectors Will Be Hit Hardest?
The economic fallout from Trump’s tariffs will be felt across a variety of sectors, particularly those with significant exposure to U.S. trade. Analysts predict the most immediate impacts will be seen in the auto, construction, energy, and agriculture sectors. Macklem’s estimates suggest that Canadian exports could drop by 8.5% in the first year following the implementation of broad-based tariffs, with Canadian businesses cutting production and laying off workers in response.
The energy sector, which employs over 900,000 people when indirect jobs are included, is highly vulnerable to these tariffs. Canada’s oil and gas industry, in particular, is heavily dependent on U.S. trade, and analysts predict it could face severe setbacks. According to Erik Johnson, the energy sector is one of the most exposed to the risk of tariffs, along with Canada’s manufacturing industry.
The automotive industry is another sector with significant exposure to Trump’s tariffs. Canada’s auto sector directly employed 125,000 workers in 2022, including 37,000 in assembly, 17,000 in truck and trailer production, and over 71,000 in parts manufacturing. Flavio Volpe, president of the Automotive Parts Manufacturers Association, warned that if tariffs are imposed, the North American auto industry could shut down within a week. If tariffs push the auto industry to a standstill, Canada’s manufacturing sector will feel the effects immediately, with job losses and production halts.
The construction industry, which employs 1.6 million Canadians, could also see project delays and cost increases due to retaliatory tariffs on steel and aluminum. According to Johnson, higher costs for construction materials like steel beams could lead to stalled projects, eventually resulting in job losses for workers in construction and related fields.
Agriculture and consumer goods sectors are also highly at risk, as lower consumer demand in the U.S. could impact exports. With agriculture alone making up 7% of Canada’s GDP and employing 2.3 million people, the tariffs could hit hard, especially in provinces like Ontario and Quebec, which rely on manufacturing industries like automotive parts, metals, and aerospace.
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Impact on Canada’s Economy and the Possibility of a Recession
Economists have raised concerns about the broader economic consequences of these tariffs, particularly if they persist for more than a few weeks. According to RBC’s December report, Canada could avoid a full-blown recession if the tariffs are lifted within a short timeframe, but if they last for several months, the risks of a recession grow rapidly.
While a weakening Canadian dollar could help soften the blow to exports, economists remain cautious. Tu Nguyen, an economist at RSM Canada, highlighted that the uncertainty surrounding trade policy could impede growth, particularly in sectors like agriculture and consumer products, where demand may decrease as U.S. consumers pull back on spending.
In conclusion, Trump’s tariffs on Canada and Mexico are expected to have wide-ranging consequences, potentially pushing Canada’s economy into a prolonged recession. With millions of jobs at risk across key industries, the country’s economic future depends on the duration and scope of the tariffs. The situation remains fluid, and the possibility of a last-minute resolution cannot be ruled out, but as of now, the trade storm looms large, and its economic impact could be profound.