U.S. President Donald Trump has enacted tariffs under the International Emergency Economic Powers Act, imposing a 25% tariff on goods from Canada and Mexico, and a 10% tariff on Chinese imports, effective from Tuesday, February 4, 2025. The tariffs are set to remain until issues related to fentanyl trafficking, undocumented migration, and the U.S. trade deficit are resolved to Trump’s satisfaction.
The Canadian economy could face a contraction with projections estimating a GDP decline of 2.5% by early 2026 if these tariffs persist. Inflation might rise to 7.2% by mid-2025, leading to significant layoffs and increased unemployment. Sectors like energy, auto, and manufacturing are expected to be particularly hard hit due to their reliance on cross-border trade.
https://twitter.com/realDonaldTrump/status/1885821495080825305/photo/1
The U.S. has imposed tariff on Canadian energy resources like oil, natural gas, and electricity, aiming to balance the economic impact while minimizing disruptions in energy prices for American consumers. However, this could still lead to higher energy costs, with projections suggesting a possible increase of 70 cents per gallon for gasoline. Canada, being the largest foreign supplier of energy to the U.S., could see a reduction in export volumes, forcing Canadian companies to accept lower prices or seek alternative markets, which might take years to develop effectively. With the U.S. accounting for 91% of Canadian automotive exports, tariffs could lead to a significant slowdown in production. The retaliatory tariffs from Canada would further complicate the supply chain, increasing costs for both Canadian and American manufacturers. This situation could result in higher car prices for consumers and might push assembly operations to look for alternative, less cost-effective suppliers or markets.
In retaliation, Canadian Prime Minister Justin Trudeau has announced 25% tariffs on $155 billion worth of U.S. goods, with the first set of tariffs effective from Tuesday and further tariffs planned in 21 days. This includes targeting American steel, ceramics, and agricultural products, aiming to match the impact of U.S. tariffs dollar-for-dollar while minimizing harm to Canadian consumers.
https://x.com/JustinTrudeau/status/1885873761343480109
The tariff announcements have stirred both countries’ political landscapes. In Canada, there’s been significant political fallout, including the resignation of Finance Minister Chrystia Freeland over tariff strategy disagreements. In the U.S., while some political figures support the tariffs as a means to leverage trade negotiations, others criticize them for potentially increasing costs for American consumers.
The tariff war could lead to broader economic disruptions worldwide, affecting supply chains and potentially igniting a larger trade conflict. Countries like China have responded by planning to challenge these tariffs through the World Trade Organization, indicating a possible escalation in global trade tensions.
The International Emergency Economic Powers Act (IEEPA) is a United States federal law passed in 1977 that grants the US President broad powers to manage any unusual and extraordinary threat to the national security, foreign policy, or economy of the United States, which has its source in whole or substantial part outside the United States. IEEPA allows the President to declare a national emergency with respect to threats from abroad. This declaration can be broad, encompassing threats to national security, foreign policy, or the economy. Upon declaring an emergency, the President can regulate or prohibit transactions involving any property in which any foreign country or a national thereof has any interest if such transactions pose potential threats. US President can block transactions, freeze assets, restrict imports or exports, and impose sanctions on individuals, companies, or countries. These actions can be tailored to address specific threats. Although IEEPA gives the President significant latitude, there’s a requirement for Congressional oversight. IEEPA has been used numerous times since its enactment for various purposes, including sanctioning countries like Iran, Cuba, and North Korea, and freezing assets related to terrorism financing. More recently, IEEPA has been invoked for cybersecurity threats, dealing with international drug trafficking, and addressing foreign interference in U.S. elections.
Manufacturing sectors in both countries are interlinked, with products often being part of complex supply chains that rely on free trade. Tariffs disrupt these chains, increasing costs for goods that cross the border, which could lead to reduced output, higher prices, and job losses and may increase inflation within US. More countries may be subjected to it and its true impact will be known in years to come, whether it support MAGA policies or infact make it allies walk away from startegic partnerships and confidence which US has enjoyed over the years.
Galactik Views