What’s next for Canada in the new tariff landscape?

Just over two months since Trump’s tariffs took effect, early signs of strain are emerging. Canada’s auto sector is feeling pressure, steel and aluminum producers are on alert, and prices are beginning to climb. With further tariffs on softwood, semiconductors, and pharmaceuticals still under discussion, uncertainty remains — but so do opportunities.

Prime Minister Mark Carney’s recent meeting with President Trump aimed to ease tensions, but questions about the future of Canada–U.S. trade persist. We checked back in with UBC Sauder lecturer Samuel Roscoe to understand the impact so far — and what Canada can do to stay competitive.
 

When last we spoke, Donald Trump's tariffs had just been introduced. What have been the biggest direct impacts on Canadian businesses? 

The biggest impacts we've seen are in the automotive sector, in particular in Ontario. They're having go-slows or work stoppages at some of the automotive plants, including Stellantis. 

The U.S. recently cancelled the tariffs on auto parts that fall under the USMCA, which will be a huge relief because the layoffs and stoppages were rippling across the auto parts supply chain and creating huge uncertainty for the Canadian auto industry. The U.S. administration also just announced that these tariffs will no longer "stack" — so a part crossing between the U.S. and Canada will only be tariffed once, and components or subassemblies containing both materials will only be tariffed once. So I think the Canadian auto industry is moving out of the crisis zone and into more certainty about a positive future.

Having said that, there are still tariffs on the importation of non-U.S. parts and finished vehicles outside of USMCA countries, so we’ll still see price increases on vehicles. And General Motors recently announced they’re cutting the third shift at their Oshawa plant, which will affect 700 workers; they cited “an evolving trade environment.” We're also seeing threats of layoffs in the softwood lumber economy in British Columbia because so much softwood goes down to the United States. Also, the steel and aluminum sectors are beginning to look at layoffs. 

So Canada has somehow avoided the reciprocal tariffs, but we've had this period of directly applied tariffs on cars, steel, aluminum and, in October, softwood lumber, and those four sectors are being directly hit with either layoffs or they’re no longer hiring — and that has already had a significant impact on the economy. 

The bigger issue for Canadian businesses is the threat of recession in the United States, and that’s leading a lot of Canadian businesses to stop making investments and stop hiring, because that is our major market. So, we're seeing this freeze across Canadian businesses, and that leads to joblessness. Over time, probably in the next few months, we’ll see the jobless rate increasing, and then we’re looking at recession in Canada as a ripple effect of the recession in the United States.
 

What is an impact we’re seeing that some people might not expect?

During economic crises, the first place to look is the transportation sector. When companies are sourcing from China, the lead times are usually two to three months — and what we've seen through March and April is a 44 per cent drop in container traffic traveling between China and the United States, which is absolutely enormous. That means companies are canceling orders, and at the same time, Chinese suppliers are no longer shipping to the United States because they know they aren’t going to be able to sell. 

So, the transportation sector is already telling us that we're going to have a huge drought in terms of availability of products. We’ve heard reports that the CEOs of Walmart, Target and Home Depot had a meeting with President Trump and warned him of empty shelves across their stores — which would also affect Canadian stores — because they cannot afford to buy these products at one and a half times their current price. So, the writing really is on the wall. And that’s based on the 145 per cent Chinese tariff — but the reality is even if that drops in half, or even down to 30 or 40 per cent, you're still going to have these types of effects.
 

How would this transportation slowdown affect Canadian businesses?

It depends. There are a lot of companies like Nike, Adidas and Lululemon that have Canadian distribution channels — so they'll bring a product from China into the Port of Vancouver, and then it may be railed or trucked to their depots in Ontario, and then distributed to Canadian stores. So those companies can avoid the direct China-U.S. tariffs. But other companies — and Walmart might be one — bring goods into the U.S. first, then truck them to Canada using the USMCA. Those are the products where we might begin to see shortages.
 

What have been the impacts on Canadian consumers so far?

Because of the way the retaliatory tariffs have been positioned, we're not seeing immediate price impacts except on cars and things like home renovations that involve steel, aluminum and softwood. For typical consumer goods, we haven't seen a big spike yet — but I expect that in three to six months, as the tariffs ripple through the supply chain, we will see canceled orders and shortages.

I would also expect that, as U.S. companies are paying higher prices, they are also going to begin raising their prices on all the intermediary parts that Canadian companies use. So, if we are building things like appliances or motorboats or motorcycles and resourcing products from the U.S., the price inflation in the United States will have a ripple effect into Canada as well.
 

When the tariffs were announced, it spurred a massive “Buy Canadian” movement. What do you think of the consumer response to the tariffs so far?

It's been powerful, and the buy Canadian movement has been strong. It's certainly sent a message to a lot of big U.S. brands like Jack Daniels and Harley Davidson. The buy Canadian movement has also strengthened the bottom line of a lot of Canadian retailers, because they're seeing more business driven to them. 

One of the biggest areas where we’ve seen it is the cancelation of travel to the United States. I think the tourism industry in the U.S. has taken a huge hit, especially the border towns. Places like Palm Springs are begging for Canadian tourists to come back; they even have billboards up. A recent report from Visit California, the state’s tourism board, said arrivals from Canada had decreased by more than 15 per cent over the same time last year, but I suspect that number might be even higher. Some businesses in Point Roberts, Washington have reported declines of 75 per cent or more.
 

What can Canada’s new government do to steer the ship through this storm?

What I am calling for is a coherent industrial strategy. I see some spending on extracting natural gas and oil and sending it to other markets, which is a good start. What I'm not seeing is a cohesive strategy that says “We need to invest in moving Canadian businesses up the value chain.” We need to invest in Canadian businesses like softwood lumber and support them in building better facilities so they can turn lumber into furniture, or timber that can be used in construction, instead of just sending it down to the U.S. to be processed. 

That’s especially important now because it leads to “product value density” — that is, when you have higher value products, it’s easier and more cost efficient to ship those to more distant locations, because the cost of transport is relatively less due to the higher value of the product. If you take a piece of software lumber and transform it into furniture or timber for housing, it becomes higher value, and the product value density increases. Then it makes more economic sense to look at alternative trading partners, rather than just the United States. 
 

What role do trade agreements play in this?

I didn’t see a plan in any of the election platforms about finalizing trade agreements with India or China. If you look at the Chinese Free Trade Agreement, it's been outstanding since 2016, and we've had a free trade agreement in negotiations with India since 2010. They always get stopped for political reasons, and I'm not seeing Canadian leaders saying, “Let's get serious. Let's put diversification at the heart of our industrial strategy.” 
 

How possible are trade deals given Canada’s recent political tensions with India and China?

Because of what's happened with Donald Trump, these countries — China in particular — are going on a charm offensive. They are looking to get trade deals with the E.U., so there’s no reason why they wouldn't be willing to have a free trade agreement with Canada. It's really just political will. In this moment, we have to get over the idea that China is the enemy, when the reality is China is looking like a much more stable trading partner than the United States. I never thought I would say that. India as well: we've had political tensions with India, and those have escalated in recent years, but the reality is that China is our second biggest trading partner and India is in the top six. We're trading with these countries already. Why not just acknowledge that, put it in a free trade agreement and make it more economically feasible?
 

There have been a few silver linings in the tariff chaos. Who is benefitting?

I think it's the Canadian companies that have been quick to identify new markets, or who have been quick to sell Canadian. Some Canadian businesses have realized, “If we're a B.C. business, we don't have to sell directly to the United States. Why don't we look at Alberta and Saskatchewan? Let's look at Ontario. Let's try to open up Canadian markets.” So, I think the companies that are really prioritizing new sales within the Canadian market, or diversifying their sales to Europe, to China, to India, the companies that have pivoted quickly, are the ones that are going to benefit. But any company that is still relying on sales into the U.S. or receiving supplies from the U.S. is in big trouble.
 

What can businesses do to ride out this tariff storm?

Businesses and policy makers really need to begin having conversations around diversification and how the government can support these businesses. For example, the B.C. government just announced $11 million towards four projects aimed at boosting the local mass timber manufacturing sector. It will create 100 jobs in B.C. A company based in Nelson will get $7.5 million to build a new production facility where they will turn softwood lumber into curved, laminated timber — bonded layers of wood that will be structural components for buildings. The idea is to invest money to move companies up the value chain. 

I'm seeing some evidence now that governments are realizing this is important. But of course, $11 million is a drop in the bucket. It needs to be in the billions, and it needs to be across Canada for it to have any significant difference. So businesses need to be shouting from the rooftops, saying “Help us transform our businesses and capture more value.” We should also have policymakers and business leaders sitting down, find new markets they want to sell into, and then really push these free trade agreements. That might not be China and India. It could be other countries too. 
 

Meanwhile, what can consumers do to kind of “batten down the hatches?”

It’s difficult for consumers at the moment. We are already beginning to see people being a lot more careful about their spending. Canceling trips to the U.S. and enjoying more local tourism is going to be a trend we see over the summer. And I think we’ll see consumers saving their money, and maybe investing in real estate rather than putting their money into the stock market because of the uncertainty. The Buy Canadian movement is strong, and it’s definitely sending a message to a lot of businesses. So that needs to be continued in order to let the U.S. government know this is not acceptable.