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🚀 US Tariff Analysis
Liam Gill
January 14, 2025
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With President Trump just a week away from assuming office, I wanted to take some time to deep dive into the potential impacts of his proposed tariff strategy. In particular, I wanted to look at how a 25% tariff on Canadian goods could impact both countries.
One of the unique aspects of a 25% tariff on Canada compared with other countries is that the two countries have long operated economically as a single market in key industries. Two particular areas are oil/gas and automotive.
In the automotive industry, a single car built in Canada or the US often has parts and labour from both countries. GM and Ford have long been manufacturers of their vehicles in Ontario and Detroit. From my research, there isn’t a single car made by either company that is 100% manufactured in one country,y and 20% of the vehicles are “assembled” in Canada. Implementing tariffs would devastate this industry and require Ford and GM to completely re-design their production methods. Overall, the re-designed production is likely to lead to more expensive cars in both countries without adding jobs for either country. It will limit specialization and require these companies and their suppliers to have clones on each side of the border.
The oil and gas industry is the most interesting in a potential tariff war. 52% of the oil the US imports comes from Canada, but it isn’t as straightforward as it might seem on the surface. Due to longstanding environmental concerns, Canada hasn’t built major pipelines outside of those throughout North America; plans for pipelines to Russia and China have not materialized in any significant fashion. Furthermore, Canada hasn’t invested in refineries due to the environmental impact. The way that the oil industry works in Canada and the US is that Canada sends unrefined crude oil to Texas, where it is refined and sold and used in the US and sold around the world. Because of the lack of options for Canada, they have long sold unrefined crude oil to the US at a significant discount. With these tariffs, if Canada were to stop selling unrefined crude oil to the US, it would devastate the oil and gas industries in both countries.
There are numerous plans on both sides of the border for how to deal with this tariff threat. Canada has threatened to cut off energy supply to the US if needed. Again this is a situation unique to Canada and the US. The power grid in the Northeast US originates in Canada. So Canada can turn off a power plan and instantly leave millions of US homes and buildings without electricity.
We will all need to wait to see what happens next week, but everyone should be aware of the potential impacts that this tariff war may have. In 10 days, some Americans may be unable to turn on the lights in their homes, over 1 million will be unemployed, and the US government will see a $10-12 Trillion deficit increase.
Realistically, the tariffs are likely to be a negotiation tactic simply. It has already brought Canada to the negotiation table. An actual tariff war with Canada would cause both countries too much harm and irreparable damage.
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Onwards and Upwards,
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