On Tuesday, President Donald Trump issued a stern warning regarding a potential escalation in the ongoing trade war with Canada, following Ontario's recent decision to impose a 25% surcharge on U.S. electricity exports. This announcement sent shockwaves through the stock market, with the Dow Jones dropping 1.6%, the S&P 500 declining by 1.2%, and the Nasdaq Composite falling 0.8% by mid-afternoon. Trump's post on Truth Social hinted at a reciprocal measure: a 25% tariff on all Canadian electricity imports.
The potential increase in tariffs could result in higher energy costs for American consumers, particularly those in northern states that heavily rely on Canadian electricity. Ontario Premier Doug Ford warned that the surcharge could lead to an increase of up to $100 a month on electricity bills for residents in Ontario. In addition to the electricity tariffs, Trump threatened to impose even higher tariffs on Canadian steel and aluminum than previously planned. “I have instructed my Secretary of Commerce to add an ADDITIONAL 25% Tariff, making it 50%, on all steel and aluminum coming into the United States from Canada," Trump declared.
In response to Trump's threats, Premier Ford indicated that Ontario could consider shutting off electricity supplies to the U.S. entirely if necessary. “Is it a tool in our toolkit?” he asked. “100%. And as he continues to hurt Canadian families, I won’t hesitate to do that.” Ford is expected to discuss the matter with Commerce Secretary Howard Lutnick later this week.
Furthermore, Trump expressed intentions to declare a national electricity emergency concerning the states affected by Ontario’s surcharge. In a pointed statement, he remarked, “Can you imagine Canada stooping so low as to use electricity, which affects the lives of innocent people, as a bargaining chip?”
As part of his broader trade strategy, Trump also mentioned plans to impose significant tariffs on automobiles imported from Canada, with a potential start date of April 2. He claimed these tariffs could “essentially, permanently shut down the automobile manufacturing business in Canada.” Additionally, there is a looming threat of a 250% tariff on Canadian dairy products, which Trump announced last Friday as a response to high Canadian taxes on American dairy imports.
While Trump aims to target the Canadian economy, experts warn that such tariffs could also adversely affect the American economy. Canada is a vital supplier of iron, steel, and aluminum to the U.S., with imports totaling $11.4 billion in aluminum and $7.6 billion in iron and steel last year, according to the U.S. Commerce Department. Canadian exports account for 41% of U.S. aluminum imports and nearly a quarter of iron and steel imports.
The potential implementation of a 25% tariff on Canadian aluminum could lead to significant job losses in the U.S., with the CEO of Alcoa warning that it could cost the U.S. around 100,000 jobs. The aluminum industry in the U.S. directly employs 164,000 workers and supports an additional 272,000 jobs in related fields.
Tariffs on aluminum and steel would have a ripple effect across numerous industries, driving up prices for everyday goods. For example, vehicles are constructed using substantial amounts of steel and aluminum, meaning that while Trump's auto tariffs may aim to stifle Canadian production, they could inadvertently harm U.S. auto manufacturing, given the interconnected nature of the North American supply chain. Other products reliant on steel and aluminum, such as appliances, machinery, and medical devices, could also see price increases.
The escalating trade tensions between the United States and Canada pose significant risks not only to the Canadian economy but also to American consumers and industries. As both nations navigate these challenging waters, the potential for increased tariffs raises questions about the broader implications for trade relations and economic stability.
