The U.S.-Canada tariff war kicked off in March of 2025, with the U.S. imposing 25% tariffs on most Canadian goods and 10% on energy products, prompting Canada to retaliate with 25% tariffs on $155 billion of U.S. goods. This tit-for-tat threatens Canada’s economy with a potential GDP drop of over 3 points and 510,000+ job losses, while the U.S. faces milder trade disruptions. Hard-hit sectors like forestry and automotive brace for export declines while energy holds steadier. Businesses are delaying spending, real estate faces regional challenges, and Trump’s unpredictable negotiation style makes the outcome uncertain.

The U.S.-Canada Tariff War: Uncertainty Reigns for Investors

The escalating tariff conflict between the United States and Canada has unsettled markets and raised concerns for investors. Effective March 4, 2025, this trade dispute is driving significant economic shifts on both sides of the border. The following analysis explores the impacts on Canada’s economy, key industries, business responses, and real estate trends, alongside historical comparisons, concluding with an evaluation of Trump’s track record and the unpredictable road ahead.

Economic Fallout: Canada Feels the Squeeze

Canada’s economy is experiencing negative effects. The Brookings Institution estimates a GDP growth reduction of over three percentage points and more than 510,000 job losses if tariffs persist, based on a 3-5-year projection [3]. Rising import costs are increasing inflation, affecting both consumers and businesses. The U.S. faces less severe impacts, including supply chain delays and gradual price increases, but Canada’s greater reliance on trade heightens its challenges. Below is a summary from Brookings’ Global Trade Analysis Project (GTAP) modeling, focusing on Canada:

Brookings' GTAP Model (3-5 year projection)

Source: Brookings Institution [3]

This table underscores Canada’s vulnerability, with job losses spotlighting the impact on its labor force.

Sector Divide: Hits and Misses

The tariffs affect industries differently. Sectors such as automotive, based mainly in Ontario, and forestry, a key industry in British Columbia, face the full 25% tariff, threatening major exports like vehicles ($37.4 billion annually) and wood products [4]. Manufacturing, including electronics, is also expected to see significant declines, according to Brookings’ projections [3]. In contrast, the energy sector benefits from a lower 10% tariff, with Alberta’s oil and gas, which account for 18% of exports, experiencing less disruption [4]. Services and domestically focused industries like construction are not directly impacted by tariffs, though the overall economic slowdown could still affect them.

Business Response: A Waiting Game

Companies are delaying spending instead of investing. Uncertainty about how long the tariffs will last and their final outcome has paused capital expenditures and expansion plans as firms wait for more information. Some are seeking new markets, such as Asia, or different suppliers to reduce the impact, but most are retaining cash and avoiding decisions until the situation becomes more apparent. The Bank of Canada notes that “tariffs disrupt trade flows” in ways that are difficult to predict [5], keeping businesses in a state of uncertainty.

Historical Context: Old Tactics, New Stakes

Canada’s history with tariffs provides context. The country has long used protectionism for industries like dairy and steel, though agreements such as the North American Free Trade Agreement and the United States-Mexico-Canada Agreement have moderated these policies over time [7]. Trump’s current actions resemble previous trade disputes, which were challenging but typically settled. Businesses and investors are familiar with this pattern, but the current situation involves larger scope and higher consequences, and the outcome is still uncertain.

Trump’s Game, Everyone’s Guess

Trump’s past negotiation style, such as the 2018 steel tariffs, influences this tariff conflict. His tendency to act unpredictably makes it unclear whether these tariffs will remain, be adjusted, or lead to a compromise benefiting the U.S., Canada, and their regions. Will he maintain his position or negotiate? Companies, uncertain about the future, have stopped spending and are awaiting direction. Globally, politicians are also involved in this situation, and the outcome remains unknown without clear indicators. One positive note stands out: diversification across U.S. and international stocks was additive in 2025 (as of mid-March), a notable success after years of U.S. market strength. This situation continues for Canadian and U.S. investors, with Trump’s next decision being critical.

Sources:

[1] Source: The White House, March 3, 2025

[2] Source: Reuters, March 3, 2025

[3] Source: Brookings Institution, February 3, 2025

[4] Source: The Observatory of Economic Complexity

[5] Source: Bank of Canada, January 2025

[6] Source: Global News, January 29, 2025

[7] Source: Business Standard, March 4, 2025

Disclosures

Canterbury believes that the information contained herein is accurate and/or derived from sources which are reliable, but Canterbury does not warrant its accuracy or completeness. Canterbury has no obligation (express or implied) to update any or all the information contained herein or to advise you of any changes. The nature of any trade restriction or tariff, as well as its effect on economic conditions, are complex. The blog post does not aim to provide accurate or complete description of its dynamics. To the extent any information herein constitutes "forward-looking statements" (which can be identified by the use of forward-looking terminology such as "may", "will", "should", "expect", "anticipate", "upside", "potential", "project", "estimate", "intend", "continue", "target", "pending" or "believe" or comparable terminology), please note that, due to various risks and uncertainties, actual events, results or performance may differ materially from those reflected or contemplated in such forward-looking statements. Any forward-looking statements are for illustrative purposes only and are not to be relied upon as predictive of any specific economic or financial outcome.  The blog is for informational purpose only and not to be construed as a recommendation to invest in any specific security or strategy.  It is not to be seen as a solicitation to engage Canterbury for its consulting services.

Mr. Shiras is a member of Canterbury’s Research Group and is responsible for sourcing, evaluating, and monitoring traditional, long-only equity managers. Mr. Shiras serves on Canterbury's Fixed Income and Hedge Funds Manager Research Committees, and as vice chair on the Global Equity Research Committee. He also serves on the Capital Markets Committee. Prior to joining Canterbury, Mr. Shiras served as a financial analyst with Apriem Advisors, where he conducted security and economic research, and was an investment analyst with NFP Retirement, where he contributed to strategy and market research. Mr. Shiras received a Bachelor of Arts in business administration from the University of California, Irvine. He is a CFA® charterholder and a Chartered Alternative Investment Analyst.