It took less than a week for the uneasy pause in trade tensions between Canada and the U.S. to reignite after U.S. President Donald Trump announced steep tariffs on steel and aluminum imports.
The 25 per cent tariff, which is set to take effect on March 12, includes products from Canada — the largest source of U.S. steel and aluminum imports.
Although the tariffs apply to imports from all countries, Canada will be the most impacted by far as the U.S. imports a larger amount of steel and aluminum from Canada than any other country. Of note, aluminum imports from Canada are greater than the next 10 countries combined.
The tariff announcement also overrides current trade agreements the U.S. has with Canada, Mexico, the UK, Japan and others.
As Canada considers its response, these tariffs — combined with the currently paused executive order targetting a broad range of Canadian goods — would severely impact Canada’s manufacturing sector.
This isn’t the first time Trump has levied tariffs on Canadian steel and aluminum. During his first administration in 2018 amid free-trade negotiations, U.S. tariffs on Canadian products — as well as Canada’s reciprocal tariffs — were in place for just over a year.
The economic hit appears confined within the manufacturing sector thus far. The loonie stayed steady, and if there are exemptions like in 2018 – which remains unclear at this moment – then the overall hit on Canada’s growth and inflation would be limited. 
Manufacturing sector vulnerable
Manufacturing is the sector most vulnerable to tariffs due to the deep integration of the Canada-U.S.-Mexico supply chain. A significant 39.4 per cent (641,000 jobs) of Canadian manufacturing jobs (641,000) rely on U.S. demand.
Canada’s 90,000 manufacturers contribute nearly 10 per cent of the country’s gross domestic product (GDP), generate 1.9 million jobs, contribute to one-quarter of Canada’s business research and development spending and account for 60 per cent of Canada’s exports according to the Canadian Association of Manufacturers and Exporters.
Canada’s manufacturing sector has faced multiple challenges and economic pressures in recent years, including the pandemic shock, supply chain disruptions, labor shortages, rising costs and rising financing costs. The sector gradually began to recover as interest rates started to drop and the labor market stabilized. The manufacturing purchasing managers’ index (PMI) even signalled a return to growth at the end of 2024 after a prolonged period of contraction.
The disruption from Trump’s latest order would stall the progress made by the overall manufacturing sector and disproportionately affect Canada’s base metals production and processing industry.
Despite trade policy uncertainty, Canada’s manufacturing sector added a staggering 33,100 out of 76,000 total jobs gained in January. This surge, the largest since the pandemic-related wide swings in 2020, signals underlying optimism and is notable due to the struggles of goods-producing sectors in the last five years.
The takeaway
The only certainty with current U.S.-Canada tariff tensions remains uncertainty, so business leaders should keep a careful eye on the latest developments and act judiciously.
Ahead of the expected March 12 implementation, manufacturers could consider taking these proactive steps:
- Understanding your supply chains and sourcing practices, identifying country-specific risks and vendor concentration vulnerabilities, assessing full landed cost of imported goods including tariffs. Explore alternative sourcing strategies and evaluate associated costs.
- Assessing tariff planning strategies, including advancing deliveries ahead of the anticipated tariffs, utilizing bonded warehouses, foreign trade zones, and duty drawbacks programs.
- Exploring expansion into new global markets, diversifying revenue streams and distribution channels.
- Modelling pricing strategies to determine the feasibility of passing additional costs to customers, as well as negotiating long-term contracts and cost-sharing arrangements with vendors.
- Evaluating long-term shifts in supply chains, production and distribution footprint to be prepared for rapid changes, tariff increases, and other trade risks.
- Optimizing operations by identify opportunities for increased efficiency, cost reduction, raising workforce productivity, enhancing profitability throughout value chain and prioritizing investments that generate long-term values and deliver high returns on capital outlays.
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