Trump will raise Canada auto tariffs to 50% in January following trade war breakdown

Economists are cautioning that a resurgence of the trade war with the United States could jeopardize Canada's promising economic recovery. The U.S. has imposed 50 percent tariffs on approximately $28 billion worth of Canadian goods after trade negotiations stalled. These tariffs target a variety of products, including cement, honey, alcohol, and textiles, which constitute about five percent of Canada's exports to the U.S.

According to Trevor Tombe, an economics professor at the University of Calgary, industries such as machinery, electronics, furniture, and textiles will suffer significant losses due to the new tariffs. This could lead to around 50,000 job losses directly within affected industries and an additional 35,000 jobs impacted through the supply chain. The impact of these tariffs will unfold gradually over the coming months, rather than all at once, based on Tombe's estimates.

While most economists anticipate that the economy can absorb the blow from a macroeconomic perspective, the tariffs and ensuing uncertainty could still shave a few tenths of a percentage point off Canada's GDP growth for the second half of the year, according to Randall Bartlett, deputy chief economist at Desjardins. Moreover, the reignited trade war may shave a few more points off growth in 2027.

Bradley Saunders, North America economist at Capital Economics, warns that the new tariffs push Canada closer to a recession, especially if the U.S. escalates further in response to Canada's retaliation. Saunders also predicts that businesses might delay investment decisions due to the heightened uncertainty, potentially causing a larger economic hit than the tariffs themselves.

Prime Minister Mark Carney has pledged to retaliate with Canada's own tariffs starting September 8, but the specifics of these duties and other potential trade restrictions are still unclear. Prior to the latest round of tariffs, Canada had imposed 25 percent retaliatory tariffs on a range of U.S. goods in 2025, but dropped most of them in September.

A Bank of Canada analysis found that retail prices on affected items rose about six percent compared to non-tariffed goods during that period, but prices returned to pre-tariff levels roughly three months later.