Sweeping taxes are about 3% of the Canadian economy

An analysis published on Tuesday examined four possible scenarios in which US President Donald Trump imposes new tariffs on goods imported from Canada, ranging from 10% to 20% and possible cuts to key industries.

Speaking to reporters on Monday evening, Trump said he was considering slapping Canada and Mexico with 25% tariffs on February 1.

Canada’s response to the threat of US tariffs

Prime Minister Justin Trudeau said Canada would respond with “everything on the table.”

The CIBC report said a 20% tariff excluding goods – which account for about 46% of Canadian exports to the US – would still result in a GDP hit of 3.25%.

Under a conservative scenario where only a 10% tariff is applied and excludes both the goods and auto sectors, the impact on the Canadian economy would be approximately 1.35%. That assumption would free up about 60% of Canadian exports to the US

The report suggested that the Trump administration may not want to impose tariffs on those sectors as they rely heavily on integration with their Canadian counterparts. It noted that the oil and gas and automotive sectors represent 28% and 14%, respectively, of Canada’s total exports to the US.

“Doing so would cost American jobs more, run counter to Trump’s plans for cheap energy, and materially increase inflation,” he said.

“Frankly, we don’t believe a permanent 25% tariff is a credible threat in the near future—the barriers to implementation, negotiation, and the high risk of retaliation in this scenario make it unlikely that a trade war will go far—at least in our view.”