The United States has unleashed a wave of new tariffs in early 2025 – a “tariff shockwave” – and Canada finds itself wrestling with the fallout. This newsletter examines how exposed Canada is to these U.S. trade actions, which sectors are most vulnerable, which might prove resilient, and how Ottawa and investors are responding.
Canada’s Exposure: A Closely Tied Economy
Canada’s economy is deeply intertwined with its southern neighbor. Nearly 75% of Canada’s goods exports go to the U.S., and cross-border trade exceeds US$2.5 billion every day. This integration means U.S. tariff changes can reverberate quickly through Canadian industries. Trump’s tariff agenda – billed as “reciprocal” trade policy – targets allies and rivals alike.
In February, Trump threatened 25% tariffs on all Canadian imports (with a special 10% rate for energy), though implementation was briefly paused for negotiations. By March, 25% duties on steel and aluminum from all countries (Canada included) were put in place. In late March, Washington confirmed a 25% tariff on auto imports (cars and parts) from outside the U.S. And as of early April, a baseline 10% tariff on all imports globally took effect – with higher rates for certain nations (e.g. a punitive 34% on China and 46% on Vietnam).
Sectors Under Tariff Threat
Auto Manufacturing: The integrated North American auto industry faces major disruption. Canadian-assembled cars and parts exported to the U.S. could be hit with a hefty 25% tariff, eroding their price competitiveness. Canada and Mexico supply about 58% of U.S. auto parts imports, and Canada alone accounts for 12%. The Canadian Chamber of Commerce warns that such tariffs will “not work” as intended – reshoring production would be costly and slow – but in the near term they pose a serious risk to Ontario’s auto sector. U.S. manufacturers would also feel pain: a 25% tariff on Canadian auto parts means roughly $4 billion in extra annual costs for U.S. companies.