JOCK FINLAYSON
By Jock Finlayson, ICBA Chief Economist, the following op-ed first ran in the Toronto Sun on March 4,2025
BRITISH COLUMBIA – It is hard to keep track of the on-again, off-again cross-border tariff war with the United States that has been unfolding – in fits and starts — since President Trump returned to the White House. As these words are being written, the Americans are about to commence levying 25% tariffs on all steel and aluminum imports into the U.S. on March 12.
Because Canada is the largest foreign supplier of these U.S. imports, we stand to be hit hard. April 2 is now the “due date” for potential 25% across-the-board American tariffs on most Canadian and Mexican exports (with a lower 10% tariff proposed for imports of energy, critical minerals, and potash). The President and various of his senior officials have also mused about separate (or additional) tariffs being imposed on imports of lumber and dairy products from Canada.
In addition, they have mooted the idea of instituting “reciprocal tariffs” on all U.S. trading partners, with unclear implications for Canada. Suffice to say, the uncertainty around the Canada-U.S. trade and wider economic relationship has never been greater.
Amid the flurry of tariff threats emanating from the Trump Administration, we should not forget the planned Canadian “retaliation.” The Trudeau government has already announced 25% matching Canadian tariffs on $30 billion of products imported from the U.S. and also identified another $125 billion of imports that could well be subject to such tariffs at a later date.
The combination of steep U.S. tariffs on Canadian goods and matching Canadian duties on items imported from the United States will deliver a double-blow to our already fragile economy. Modelling done by the Bank of Canada estimates that tit-for-tat bilateral tariffs in place for at least a year will cause Canadian exports and business investment to plunge, put temporary upward pressure on inflation, weaken consumer spending, and permanently reduce the level of Canadian “output” (real GDP) by some 3%. A cycle of rising tariffs and other trade restrictions is also likely to increase the cost of building in Canada – houses, commercial buildings, manufacturing plants, retail stores, engineering infrastructure, and public sector projects.
British Columbia Focus
While British Columbia is somewhat less reliant on the American market than other provinces – sending 55% of its merchandise exports to the U.S., vs the Canadian average of 76% — it will nonetheless suffer significant economic damage from a large-scale Canada-U.S. trade spat.
The national-level economic impacts modelled by the Bank of Canada will also be felt here, albeit to a slightly lesser extent. Clearly, both private sector non-residential investment and the volume of B.C.’s exports would slump over 2025-26 in a scenario of mutual 25% tariffs. Consumer spending would soften amid rising unemployment and widespread uncertainty among many B.C. households. B.C.’s inflation rate would be nudged higher than in an alternative no-tariffs scenario. The provincial government’s already large budget deficit would blow past the record $10 billion river or red ink currently projected for 2025-26. Housing starts likely would weaken further, aggravating B.C.’s existing housing supply shortfall.
On the export side, last year B.C. shipped almost $30 billion of goods to the United States. All of these exports would face new American tariffs in a worst-case scenario.
Figure 1 summarizes the main categories of the province’s U.S.-destined exports. Perhaps surprisingly, the broad machinery and equipment category – which includes a mix of aerospace-related parts and components, other advanced technology products, transportation equipment, scientific instruments, and many other high-value goods – looms largest, representing close to one-fifth of B.C.’s exports to the U.S. last year. Agri-food and seafood products and softwood lumber rank second and third among the province’s exports to the U.S. It should be noted that non-softwood lumber products and pulp and paper are also in the top ten export list; if we add these to softwood lumber, the overall forestry sector supplies almost one-quarter of B.C.’s merchandise exports to the U.S.
Figure 1
As for the macroeconomic effects of American tariffs on specific B.C. export industries, much would depend on whether U.S. customers for B.C. goods could quickly and easily find alternative suppliers – either domestic American producers, or other foreign sources of the newly tariffed items. In the language of economists, this relates to the “price elasticity” of U.S. demand for goods imported from British Columbia. The greater the elasticity, the more the cost of the proposed American tariffs would fall on the foreign suppliers. In situations of relatively “inelastic” U.S. demand, more of the economic burden of the U.S. tariffs would be shouldered by American importers and consumers. While we have not undertaken a detailed analysis of this topic, at this point we are inclined to believe that 25% across-the-board U.S. tariffs will be especially damaging to British Columbia exporters in the lumber business, some other segments of manufacturing, and the agri-food sector.
Turning to the broader macroeconomic consequences of a tariff war, here we provide an updated B.C. economic forecast for 2025-26, assuming the application of 25% U.S. tariffs and a matching Canadian response (see Figure 2).
Figure 2
Compared to a no-tariffs scenario, we would expect little or no economic growth for the province this year and weak growth at best in 2026, a very subdued pace of job creation, higher unemployment, fewer housing starts, and a sizable drop in private sector non-residential investment.
A subsequent ICBA Economics blog will examine the bilateral trade war through the lens of the B.C. construction industry. Readers interested in how the tariff spat will affect the Alberta economy are invited to consult this report from ATB Economics.
Source: icbaindependent.ca
