Everything you want to know about the Canada-U.S. tariffs

A tariff is a tax that one country places on another country’s goods. In this case, the United States has put an extra tax on Canadian products coming into the country – which are called imports. It means American importers, from small businesses to big companies, who want to use or sell Canadian products have to pay the extra fee when they bring those goods across the border.

For the average American bringing in a single Canadian product, like a bottle of Okanagan wine, the tax could just come out to a few more dollars.

But let’s say there’s an American company that imports $5 million worth of Canadian wheat every year. A 25 per cent tariff on Canadian wheat means that business will have to pay more than $1.2 million just to bring that wheat into their country.

Suddenly, Canadian products aren’t so attractive to American customers anymore. The goal, for the United States, is that American consumers will be encouraged to spend their money on domestic products instead – which fuels the national economy.

But tariffs can also be a punitive political tool to put pressure on another nation. (In this case, it’s Canada.) And economists warn the general public ultimately pays the bill.

Canada’s retaliatory tariffs on American goods work the same way as those from the U.S., just in reverse. Canadian importers — from regular people to small businesses and giant companies — pay the extra tax when they bring American products north over the border.

Legally, it’s importers who pay for tariffs when they bring another country’s goods across the border. But in reality, those costs are often passed down to the customer because retailers often offset the extra tax by raising their prices — like those at grocery stores and gas stations.

Even if importers decide to eat the cost of the tax instead of passing the burden to consumers, that sacrifices profits. That can reduce spending power, which slows the economy down.

Tariffs affect the bottom line for an untold number of manufacturers, businesses and retailers in Canada.

Imagine you run a successful lemonade stand and the vast majority of your customers come from the next neighbourhood over. One day, those customers have to pay an extra 25 per cent to bring your lemonade across the street and into their homes. If those customers can find another lemonade stand without the extra tax, like one on their side of the road, they’ll probably shop there instead — and your stand will be in big trouble, since you’ve lost most of your cash flow.

That’s the scenario for countless Canadian companies and businesses who rely on American importers as their biggest customers — except it’s not a lemonade stand bringing in a few dollars. It can be giant companies bringing in millions.

If enough Canadian companies lose that much business all at once, the national economy will slow down and potentially crash into a recession.

The Bank of Canada has warned the tariffs will ultimately lead to a weaker Canadian dollar. A six-member team with the bank also said a trade conflict would lower incomes in Canada, disrupt the supply chain and stoke inflation — which are not good things for the national economy.

There is. It’s called the Canada-U.S.-Mexico Agreement, or CUSMA. It's in place to make trade easier and fairer between the three countries, but it’s not a perfect shield. There are provisions that say that a country can use tariffs in certain scenarios, like if there’s a concern for national security.

U.S. President Donald Trump has targeted Canadian goods with tariffs three times: in 2018, 2020 and 2025. All three times, he cited national security — likely to have a CUSMA-approved justification.

Canada could dispute this, but that would be a long process with no guarantee of success. All the while, the Canadian economy would be suffering.

Even if Canada won the dispute, the prize would be permission to hit back with retaliatory tariffs for the United States. Canada has already done that.

Tariffs on American products can hurt the Canadian public, since Canadian importers might try to offset the extra expense by raising their prices. Prime Minister Justin Trudeau has said Canada doesn’t want to fight with the United States on trade.

"We don't want to be here, we didn't ask for this," he said in early February.

The trading relationship between Canada and the U.S. is enormous, to put it mildly. Roughly $3.6 billion worth of goods went back and forth over the border every day in 2023, according to Ottawa, making the relationship worth a trillion dollars a year.

Out of all the goods Canada exports to other countries, more than three-quarters land to the south.

People have been saying for years that Canada needs to find new trading partners so its economy won’t be so much at the mercy of the United States.

The federal government has made changes since Trump’s last round of tariffs to make it easier for businesses to branch out and break into new markets. Canada currently has free trade agreements covering more than 50 countries that together cover two-thirds of the global economy and about 1.5 billion consumers, with more deals in the works.

Still, it’s hard to walk away from the world’s largest economy after a decades-long relationship that typically makes both countries somewhat happy. The United States is next door with the same language as well as similar laws. Normally, goods flow back and forth under a variety of free-trade agreements.

Breaking up, as they say, is hard to do. But Canada has been branching out and seeing other people for a while.

There’s been some chatter about this idea. Legally, it’s possible. It could even be mutually beneficial: Canada would be less dependent on the U.S. and make good use of the skilled European labour market, while the European Union could use Canadian resources that are hard to find elsewhere.

But don’t hold your breath. There’s already a long list of candidates — which are actually in Europe — and they’ve been waiting decades to join the union. As one expert put it, it would be a bad look to let Canada skip the line.

Plus, the more members in a group, the harder it gets to find common ground — and the union has had shaky moments as it is.

Instead of full membership, Canada could try for an advanced partnership with the EU or a new alliance altogether.

Right now, there are thousands of different policies that make it hard to trade from one province to another. You’ve probably heard of a few — like that most wineries and breweries can’t sell or ship directly to customers in other parts of the country.

This is because each of the 13 provinces and territories are like their own little country with their own laws, regulations, standards and more. British Columbian breweries, for example, would have to change the way they sell, store and label their beer to meet the requirements to ship to Alberta.

Many people say something should be done about such interprovincial trade barriers. Internal Trade Minister Anita Anand told CBC News that ditching those rules could lower prices by up to 15 per cent and add up to $200 billion to the domestic economy.

But even if everyone agrees that it’s a good idea, it’s not easy to do. Politicians have been trying for decades.

Part of the issue is that there’re hundreds, if not thousands, of players across the country who have to be on board if rules are going to be changed — from corporations and companies to trade regulators and health officials. Those players have boards, stakeholders, budgets to consider… and on and on.

Still, the threat of tariffs has created some momentum. In February, Anand suggested interprovincial barriers could crumble within a month.

U.S. President Donald Trump has said he wants to absorb, or annex, Canada and make it the “51st state” for a few reasons — not all of which are rooted in fact. Prime Minister Justin Trudeau has repeatedly given the idea a hard pass, though he said he’s aware the president isn’t kidding. Trump’s idea is almost universally waved off as a joke in Washington or a potential negotiating tactic. Even if the president was serious about changing the map of North America, he would face a Himalayan climb to make it happen.

Canada is a Commonwealth country, so King Charles is the official head of state. He has been silent on Trump’s suggestion that Canada join the United States.

This isn’t surprising. Members of the Royal Family have long avoided getting involved with politics, especially in matters involving Commonwealth countries. Charles’s role is more diplomatic and ceremonial.

In January, a spokesperson for Buckingham Palace said Trump's takeover threat is "not something we would comment on." Charles's representative in Canada, Gov. Gen. Mary Simon, also declined to say anything.

Under the Consumer Packaging and Labelling Act, a "Product of Canada" label means almost all — at least 98 per cent — of the total direct costs of producing the item were incurred in Canada. Essentially, the product was made in Canada by Canadians, with negligible imported elements.

If a product is 100 per cent Canadian, the label can say exactly that.

"Made in Canada," meanwhile, means more than half of the total direct costs were incurred in Canada — at least 51 per cent – but less than 98 per cent.

The Competition Bureau encourages qualifying statements for that label, such as "Made in Canada with imported parts," or "Made in Canada with 60 per cent Canadian content and 40 per cent imported content."

For both of those longer labels, the product has to have undergone its "last substantial transformation" in Canada — for example, turning dough, sauce and cheese into pizza.

If a product has Canadian elements but doesn't meet the threshold for "Product of" or "Made in," the Competition Bureau recommends more specific terms, like "Assembled in Canada with foreign parts."

The American oil and gas industry is highly dependent on Canadian products. At 10 per cent, Trump’s tariffs on Canadian energy products aren’t as steep as the taxes for other products — likely an indication of how important those products are to the United States.

Some have suggested Canada use the American reliance on its oil as leverage by, say, threatening to cut off energy exports entirely. It’s true that the move would create real, expensive problems for the United States and would certainly get the attention of the American public, since it would affect prices at the pump.

But turning off the taps would come at a cost to Canadians, too, particularly those in the heart of Alberta’s oilsands. It’s not likely an option the government would rush to use.

The trade war between Canada and the U.S. that began in 2018 lasted nearly a year. In the end, both countries made a deal to lift tariffs.