U.S. President Donald Trump has announced sweeping tariffs of 25% on Canadian goods and 10% on Canadian energy, shaking up trade relations between the two countries. Canada responded by announcing that by the end of February, $155 billion worth of U.S. imports would be subject to the tariffs as well.
But what exactly is a tariff, and why does it matter?
The Bank of Canada says a tariff is essentially a tax that a country places on goods coming in from another country. When the US government adds a tariff to Canadian products, it increases their price for American businesses and consumers. This makes imported goods more expensive and can push people to buy more locally made products instead.
Tariffs impact economies in several ways. They can reduce trade between countries, raise prices on everyday items, and even lead to job losses if businesses struggle with higher costs. On the flip side, governments earn revenue from tariffs, and domestic industries might benefit from less competition.
The biggest concern is how Canada and other countries will respond. Retaliatory tariffs—meaning Canada could impose its own taxes on American goods—could escalate into a trade war, affecting businesses and consumers on both sides of the border. Since supply chains are deeply connected, these disruptions could lead to inflation, job uncertainty, and economic slowdowns.
Whether these tariffs are short-lived or become long-term policies remains uncertain. What is clear is that they will reshape trade between Canada and the US, with lasting consequences for both economies.