An analysis released Tuesday explores four possible scenarios for U.S. President Donald Trump to impose new taxes ranging from 10 to 20 percent on Canadian imports, with possible exemptions for key industries.
Trump said in an interview with reporters on Monday night that he was considering imposing 25% tariffs on Canada and Mexico on February 1.
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Canada reacts to U.S. tariff threat
Prime Minister Justin Trudeau said Canada would respond and “everything is on the table.”
The CIBC report said that a 20% tariff excluding commodities (which account for about 46% of Canada’s exports to the United States) would still lead to a 3.25% drop in GDP.
Under a more conservative scenario, in which only 10% tariffs are imposed and the commodities and automobile industries are not included, the impact on the Canadian economy will be around 1.35%. This assumption would exempt about 60% of Canada’s exports to the United States
The report suggests the Trump administration may not want to tax these industries because they rely heavily on close integration with their Canadian counterparts. The report pointed out that the oil, natural gas and automotive industries accounted for 28% and 14% of Canada’s total exports to the United States respectively.
“Doing so would cause significant losses to U.S. jobs, contradict Trump’s plan for cheap energy, and significantly increase inflation,” the report said.
“In reality, we do not believe that permanent 25% across-the-board tariffs pose a credible threat in the near future – implementation hurdles, negotiations, and the high risk of retaliation in this scenario make it unlikely that a trade war will develop. So far away – at least that’s what we thought.
