Trade war flare-up will cost Canada

The US-Canada trade war has escalated after trade negotiations between the two countries collapsed last week. The US has imposed 50% tariffs through Section 338 on around 5.5% of Canada’s 2025 exports to the US. The tariffs apply regardless of USMCA compliance. We estimate that the new tariffs will raise the US effective tariff rate on Canadian exports to 6.9% from 5.1%, with tariffs on plastics, electrical machinery, and wood and paper products contributing the most to the increase.

What you will learn:

• Canada has threatened to impose dollar-for-dollar tariffs in retaliation to the new US levies on September 8, though details of affected products haven’t been released. We estimate that proportional retaliation, with 50% tariffs on roughly C$28bn of Canadian imports from the US, would raise Canada’s effective tariff rate on the US by about 3.9ppts to just over 6%.
• Using our Global Economic Model, we estimate that the combination of the Section 338 US tariffs and Canadian counter-tariffs will reduce Canada’s GDP by 0.3ppts below our August baseline forecast in 2027 and lift consumer prices by around 0.3ppts next year.
• The targeted nature of 50% US Section 338 tariffs means manufacturers in Quebec, New Brunswick, and Ontario will be affected the most. We’ll update this analysis using our bottom-up Canada Provincial Territorial Model once the details of the retaliatory tariffs are released.

Download the report for more detailed insights.