Assessing the Asymmetric Impact of Trump Tariffs on UK vs. Canadian Exports

The resurgence of U.S. protectionism under President Trump has reignited global trade tensions, creating starkly different outcomes for the United Kingdom and Canada. While both nations rely heavily on U.S. exports, their economic structures and trade strategies have exposed them to asymmetric risks in the face of escalating tariffs. For investors, understanding these divergences is critical to navigating the evolving landscape of global trade and identifying opportunities in sectors poised to adapt—or suffer—under the new regime.

Historical Context: Trump's Tariff Strategy and Sectoral Vulnerabilities

The Trump administration's 2017–2021 tariff campaigns, particularly under Section 232 (national security) and Section 301 (intellectual property), targeted steel (25%), aluminum (10%), and automobiles (25%). Canada, as the U.S.'s largest trading partner in these sectors, bore the brunt of these measures. By 2025, Canadian steel and aluminum exports had plummeted, with steel shipments declining at a faster rate than during the 2018–2019 tariff cycle. The automotive sector, which accounts for roughly 15% of Canada's total exports to the U.S., saw production cuts and a 1.5% contraction in real GDP in trade-exposed industries.

In contrast, the U.K. secured a more favorable position through the 2025 U.S.-UK Trade Deal, which capped auto tariffs at 10% for the first 100,000 vehicles and maintained 25% tariffs on steel and aluminum. This differential treatment reflected the U.K.'s smaller export volumes in these sectors and its strategic pivot to service-oriented industries, which are less exposed to tariffs. While the U.K. experienced a modest 1.1% GDP growth in 2024, Canada's economy lagged, with trade-sensitive sectors contributing minimally to employment and investment.

Strategic Trade Exposure: Divergent Economic Structures

Canada's economy is deeply integrated with the U.S., with over 70% of its exports destined for its neighbor. The steel and aluminum industries, which account for 8% of Canada's industrial output, are particularly vulnerable due to their reliance on U.S. demand. The 2025 doubling of Section 232 tariffs to 50% on steel and aluminum (excluding the U.K.) exacerbated this exposure, forcing Canadian firms to diversify into non-U.S. markets like the EU and Japan. However, these efforts remain limited, as U.S. tariffs still dominate 60% of Canadian steel and aluminum exports.

The U.K., by contrast, has a more diversified economy, with services (80% of GDP) offsetting industrial vulnerabilities. Its steel and aluminum exports to the U.S. represent a smaller share of total trade, reducing the direct impact of tariffs. The U.K. also leveraged its post-Brexit trade flexibility to negotiate exemptions and focus on high-value sectors like financial services and pharmaceuticals. This strategic shift has insulated the U.K. from the worst effects of U.S. protectionism, though indirect costs—such as higher input prices for manufacturing—remain a concern.

Current Trade Tensions: Escalation and Sectoral Implications (2023–2025)

The Trump administration's 2025 IEEPA tariffs, justified under a broad “economic national emergency,” have further complicated the trade environment. These tariffs apply a 10% baseline rate on most imports, with escalations for key partners: China faces a 145% effective tariff, while Canada and the U.K. are subject to 25–50% rates on steel and aluminum. The automotive sector remains a flashpoint, with U.S. tariffs now averaging 25% (vs. 2.5% in 2017–2021).

Canada's trade deficit with the U.S. hit a record $12.5 billion in April 2025, driven by declining exports and retaliatory U.S. tariffs on Canadian pork and lumber. The Canadian dollar's depreciation (from CAD/USD 0.751 to 0.695 by year-end 2024) reflects market uncertainty, with SMEs disproportionately affected. Meanwhile, the U.K. has seen a modest rebound in gold exports and a 1.1% GDP growth in 2024, though its manufacturing sector faces rising costs due to U.S. tariffs on intermediate goods.

Investment Implications: Where to Allocate and Avoid

1. Canada: Defensive Sectors and Diversification Plays
2. Auto and Steel Producers: Firms like Stellantis and ArcelorMittal Canada face margin pressures from U.S. tariffs. Investors should monitor hedging strategies and diversification into EU markets.
3. Renewable Energy and Tech: With trade tensions diverting capital from traditional industries, investments in clean energy (e.g., SolarEdge Technologies) and AI-driven manufacturing (e.g., C3.ai) offer long-term resilience.

4. Currency Exposure: The CAD's weakness against the USD makes Canadian dollar-denominated assets less attractive for foreign investors. Consider hedged ETFs or U.S.-listed Canadian companies.

5. U.K.: Capitalizing on Service-Driven Resilience

6. Financial Services and Pharmaceuticals: Sectors like HSBC and AstraZeneca benefit from the U.K.'s shift away from industrial exports. The U.K.'s 2024 trade deal with Japan and the EU further supports these industries.
7. Gold and Commodity Producers: The U.K.'s increased gold exports (up 12% in 2024) highlight its role as a safe-haven economy. Gold mining firms like Barrick Gold could see sustained demand.

8. Tech and Innovation: The U.K.'s post-Brexit focus on fintech and AI (e.g., DeepMind) positions it as a hub for high-growth, tariff-resistant sectors.

9. Avoiding High-Risk Exposures

10. U.S.-Dependent SMEs in Canada: Small manufacturers and exporters with limited diversification face liquidity risks. Avoid concentrated bets in steel, aluminum, or auto parts.
11. U.S. Agricultural Imports: Both countries have imposed retaliatory tariffs on U.S. pork and beef, reducing demand for U.S. agribusiness giants like Tyson Foods and Cargill.

Conclusion: Navigating a Fractured Global Trade Order

The asymmetric impact of U.S. tariffs underscores the need for investors to prioritize flexibility and diversification. Canada's industrial base remains vulnerable to U.S. policy shifts, while the U.K.'s service-driven economy offers a buffer against protectionism. As global trade tensions persist, sectors that adapt to supply chain fragmentation—such as renewable energy, tech, and financial services—will outperform. For now, the U.K. appears better positioned to weather the storm, but Canada's long-term resilience will depend on its ability to rebalance trade relationships and invest in high-value industries.