US Trade Tariffs: A Threat to Canada’s Economic Recovery

New tariffs imposed by the administration of US President Donald Trump are threatening Canada’s economic recovery, raising the risk of rising prices, higher unemployment and even a possible recession. Given that 75% of Canadian exports and a third of all imports depend on trade with the United States, the consequences of such actions could be serious.

Canada’s heavy dependence on international trade makes its economy vulnerable to a prolonged trade conflict. After several difficult quarters, the national economy has begun to show positive dynamics, which was made possible by six consecutive interest rate cuts by the Bank of Canada. However, new trade barriers could nullify this progress.

According to Reuters, in the fourth quarter of 2023, the Canadian economy grew by 2.6% - more than expected. In addition, a significant increase in jobs was recorded in January, which positively affected the unemployment rate. However, economists warn that these gains may be short-lived if the tariffs remain in place for a long time.

“If the restrictive measures are in place indefinitely, it will practically wipe out two years of economic growth,” said Craig Alexander, president of Alexander Economic Views. He added that if the trade sanctions are further tightened, the Canadian economy could face a mild recession, although the true extent of the impact is still unknown.

The United States has imposed a 25% tariff on all imports from Canada, except for energy, which is taxed at 10%. The Canadian government has announced immediate retaliatory measures, which have prompted new threats from Washington of even tougher tariffs. According to Randall Bartlett, deputy chief economist at Desjardins, such actions could lead to a decline in the economy as early as the second quarter of this year, and the unemployment rate could reach 8%, compared to the current 6.6%.

More than 2.4 million jobs in Canada depend on trade with the United States, and if the situation does not change, many companies will find themselves on the verge of bankruptcy. "I will not embellish the situation. It will be difficult," said Prime Minister Justin Trudeau, commenting on the tariffs. Experts warn that the continuation of the trade conflict will lead to an increase in corporate defaults, a reduction in government revenues and a possible loss of credit ratings by Canadian provinces.