Tariff War Likely to Plunge Canada Into Recession

The recent announcement of U.S. tariffs on Canadian goods, coupled with Canada's retaliatory measures, has set the stage for a potential trade war that could have severe consequences for the Canadian economy. As the two largest trading partners, any disruption in the flow of goods and services between the U.S. and Canada is likely to have significant impacts on both economies. However, given the size and interconnectedness of the U.S. economy, Canada may be more vulnerable to the effects of a prolonged trade dispute.

The U.S. tariffs, which target a wide range of Canadian goods, including energy exports, are expected to have a significant impact on the Canadian economy. The energy sector, in particular, is likely to be hit hard, as Canada is the largest supplier of energy to the U.S. The 10% tariff on Canadian energy products is expected to increase costs for U.S. refineries, potentially leading to reduced demand for Canadian energy exports. This could impact Canadian energy companies' profitability and investment decisions, leading to job losses and slower economic growth.

The Canadian government's response to the U.S. tariffs, which includes a $155 billion tariff package on U.S. goods, is also likely to have negative impacts on the U.S. economy. The tariffs on Canadian goods and materials will raise prices for American consumers and businesses, leading to reduced demand for these products. This could result in job losses in the affected industries and currency devaluation.



The Canadian government estimates that the U.S. tariffs will have devastating consequences for the American economy and people, upending production at U.S. auto assembly plants and oil refineries, raising costs for American consumers, and putting American prosperity at risk (Department of Finance Canada, 2025). The Canadian government's countermeasures, including tariffs on U.S. goods, are also likely to have negative impacts on the U.S. economy, as they will increase costs for American consumers and businesses, disrupt supply chains, and reduce economic growth.

In conclusion, the U.S. tariffs on Canadian goods, coupled with Canada's retaliatory measures, are likely to have significant negative impacts on both the Canadian and U.S. economies. The energy sector, in particular, is likely to be hit hard, as Canada is the largest supplier of energy to the U.S. The Canadian government's response to the U.S. tariffs, which includes a $155 billion tariff package on U.S. goods, is also likely to have negative impacts on the U.S. economy. As the two largest trading partners, any disruption in the flow of goods and services between the U.S. and Canada is likely to have significant impacts on both economies. However, given the size and interconnectedness of the U.S. economy, Canada may be more vulnerable to the effects of a prolonged trade dispute.