The ongoing tariff dispute between the United States and Canada is expected to have a relatively limited impact on their overall economies, but certain industries could face significant losses, economist Gary Clyde Hufbauer told Anadolu.
Canada has introduced tariffs of 15%, 25% and 50% on around C$27.6 billion ($20 billion) worth of US imports, beginning Sept. 8. The measures target products including steel, dairy goods, household appliances, agricultural machinery, electronics, furniture and clothing. Ottawa later excluded fish and seafood after concerns from the industry about potential economic damage.
The move follows Washington’s 50% tariffs on almost $20 billion of Canadian goods, imposed on Aug. 22. US measures mainly affect Canadian automobiles, alcoholic drinks and dairy-related products.
Limited Impact But Major Sectoral Pressure
Hufbauer said the tariffs currently cover only about $40 billion of the roughly $1 trillion in annual two-way trade, meaning their overall macroeconomic effect should remain relatively small unless the dispute expands.
However, industries with highly integrated supply chains are particularly vulnerable. The automobile sector is among the hardest hit because vehicle components often cross the US-Canada border multiple times during production. Repeated tariffs could increase manufacturing costs and discourage companies from making new investments in Canada.
Ontario is expected to face especially heavy pressure because its automotive industry is closely connected with manufacturing centers across the US Midwest.
Canada is also more exposed because more than 70% of its goods exports are sent to the US. Hufbauer estimates that the tariff dispute could increase inflation in Canada by around 0.3 percentage points, compared with less than 0.1 percentage point in the US.
Investment Could Face Greater Damage
The economist said the longer-term consequences could be more serious for investment than for trade itself. Businesses may become reluctant to establish new factories, battery plants and processing facilities in Canada if they fear further restrictions on access to the US market.
Ottawa has announced billions of dollars in financial assistance for affected businesses and workers to reduce the domestic impact.
Canada Has Energy And Mineral Leverage
Despite being the smaller economy, Canada has important bargaining power because the US relies heavily on Canadian energy and industrial materials.
Canada supplies a large share of US crude oil imports, particularly to refineries in the Midwest that are designed to process Canadian heavy crude. Restrictions on oil and electricity exports could therefore push up prices and create supply problems in parts of the US.
Critical minerals could also provide Canada with negotiating leverage. However, limiting exports would hurt Canadian producers as well, meaning such measures would likely be used temporarily rather than as permanent economic weapons.
USMCA Uncertainty Adds To Concerns
The tariff conflict comes amid uncertainty surrounding the future of the US-Mexico-Canada Agreement. Although the agreement remains in force, disagreements between the three countries have raised doubts about the future of North American economic integration.
Hufbauer expects negotiations to continue through the end of 2026, with a possible settlement in January 2027. He believes Canada could retain better access to the US market than many other trading partners, although some sector-specific disputes are likely to continue.
Canada is also attempting to reduce its dependence on the US by expanding trade with other countries. However, geographical proximity, energy infrastructure and deeply connected manufacturing networks mean that replacing the US market will be difficult.
Overall Assessment
The US may have greater economic power, but Canada faces the heavier immediate economic burden because of its dependence on the American market. At the same time, Canada’s energy supplies, critical minerals and integrated industrial links give Ottawa important leverage in negotiations.
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