REAKING: U.S. tariffs on Canada and Mexico will take effect Tuesday, Trump says
U.S. President Donald Trump has confirmed that his long-threatened trade war will go ahead, with tariffs on Canadian goods scheduled to take effect just after midnight tonight.
Trump told reporters at the White House that there was nothing Canada could do to stop the tariffs, which he says are necessary to address longstanding trade imbalances.
“The tariffs, you know, they’re are all set. They go into effect tomorrow,” Trump said. “No room left for Mexico or for Canada.”
The measures include a 25% tariff on all Canadian imports and a 10% levy on energy products.
The tariffs, which had been delayed after Canada and Mexico agreed to introduce new security measures at the border, were initially tied to the illegal flow of people and drugs. The delay, Trump said, had allowed time for an “economic deal,” but it remains unclear what he expects from Canada in exchange for removing the tariff threat permanently.
Canada’s 5-year bond yield dropped 8 basis points (bps) on the news, reaching a new 3-year low of 2.52%.
Following the drop in Canada’s 5-year bond yield, markets saw a broad selloff. The TSX fell 1.54% (-391 pts), while the Dow dropped 1.48% (-649 pts). The Canadian dollar also weakened 0.26% to 0.6906 against the U.S. dollar.
Attention is also turning to the Bank of Canada‘s upcoming rate decision next week. Bond markets are now suggesting a greater probability of a 25-bps rate cut at the March 12 meeting.
Canada vows retaliation
In response to the tariffs, Ottawa has promised swift countermeasures. Officials say Canada will impose retaliatory tariffs on U.S. goods, mirroring past disputes that saw billions in duties on American steel, aluminum, and consumer products. The federal government is expected to outline its response in the coming days.
Foreign Affairs Minister Mélanie Joly confirmed that if the levies go into force, Ottawa will revive its previously announced retaliatory plan, starting with a 25% tariff on $30 billion worth of U.S. products, followed by duties on another $125 billion in goods three weeks later.
Ontario Premier Doug Ford has also spoken out, vowing to defend the province’s manufacturing sector.
“If they want to try to annihilate Ontario, I will do anything — including cutting off their energy — with a smile on my face,” Ford said. “They need to feel the pain. They want to come at us? We’ve got to go back twice as hard.”
The impact of a prolonged trade war between the two countries could be severe.
According to CIBC, if the tariffs remain in place long term, Canada’s GDP could contract by 2-5%, with up to 350,000 job losses—a blow that would hit Ontario and Quebec the hardest due to their heavy reliance on manufacturing and resource exports.
“For Canada, this is clearly negative for the near-term outlook, and we’ve judged such action could cut 2025 growth by almost 2 ppts,” noted BMO’s Robert Kavcic. “Next week’s Bank of Canada meeting is also in play, as tariffs going through would likely prompt another rate cut, even if the BoC has been careful with their messaging on that front—the market certainly thinks so.”
Inflation risks and the Fed’s next move
Beyond the economic fallout in Canada, inflationary pressures are mounting in the U.S., raising questions about the Federal Reserve’s ability to continue cutting rates.
According to National Bank economist Jocelyn Paquet, the tariffs on China, Canada, and Mexico have “the potential to accelerate a rebound in goods inflation that is already underway.”
