The 25% tariff imposed on Canada from US President Donald Trump will reduce the buying power of the average Canadian by approximately $1,100, according to the Canadian Chamber of Commerce, while a new report from TD Economics shines a light on the trade dynamics between the two countries.
“Canada is the largest export market for the US and makes up one of the smallest trade deficits, owing largely to US demand for energy-related products,” write the report’s authors, economists Marc Ercolao, and Andrew Foran, adding the total value of imports and exports crossing the border is equivalent to CAD$3.6 billion every day.
“Trade between the US and Canada is highly integrated. Most Canadian exports are inputs used by American businesses in their own production, more so than with other trading partners,” says the report.
“Thus, a disproportionate share of the negative tariff impacts on imports from Canada would be through the channel of business supply chains and productivity that would drive higher costs and inflationary pressures at the retail level.”
“Canada is the largest export market for the US and makes up one of the smallest trade deficits, owing largely to US demand for energy-related products.”
Trade in the automotive industry between the two countries is balanced, and while Trump has talked about the US replacing Canadian auto exports with its own domestic supply, the highly integrated North American supply chains are a major complicating factor, with the Canadian Chamber of Commerce reporting auto parts can cross the Canada/US border eight times before assembly.
“Flipping (Trumps assertion) on its head, Canadian auto manufacturing has room to expand,” says the TD report. “Canada produces only 14 car models but consumes 325 models. The US produces 121 models of the 328 models consumed by Americans.”
Trump has also asserted the US subsidizes Canada to the tune of US$200 billion per year.
“It’s unclear where this number is derived. In any event, rather than a subsidy, the US trade deficit is a by-product of US economic outperformance relative to other countries,” says the TD report. “In addition to border security concerns, Trump has argued ‘the United States can no longer suffer the massive trade deficits that Canada needs to stay afloat.”
Through the first nine months of 2024, roughly CAD$800 billion (US$600 billion) of goods crossed the Canada-US border.
“Including trade in services boosts these totals to CAD$910 (US$683 billion),” says the report, adding only Mexico edges out Canada
“But when it comes to which country dominates in buying American products, Canada is the single largest market by a large margin with nearly US$350 billion goods and services crossing Canada’s border over the first three quarters of 2024,” says the report, adding, “Some 34 US states sell more goods to Canada than any other foreign economy.”