The Trade War Next Door: Canada and Trump’s Tariff Challenge

Shortly after the 2024 election results came in, the president-elect Donald Trump threatened the United States’ neighboring countries with a trade war.

He plans to bring flat 25% import tariffs on goods from Canada and Mexico.

These tariffs may cost billions of dollars for the targeted countries and the US alike, initial estimates suggest.

Yes, the US will also suffer from the new tariffs. After all, these trade barriers will raise the cost of goods, which will eventually be passed on to the final consumers: Americans.

However, Trump has a simple list of demands that can help to keep the status quo intact.

Let’s see what he proposes and how the story can unfold from here.

Most importantly, what does it mean for Canada and its mining sector?

Demands

Trump’s biggest concerns are illegal immigration and the flow of drugs into the US.

He blames Mexico and Canada and demands to enhance their borders with the US, or else the tariffs will come into force.

The problem of illegal immigration from Mexico isn’t a surprise. (Remember the wall that Trump began building during his first term?)

However, Canada has never been a big issue for immigration, or at least it wasn’t too obvious.

The data shows that last fiscal year, 56,530 illegal immigrants were arrested at the Mexican border and only 23,721 at the Canadian one.

Mexico is causing twice as much trouble here compared to Canada.

For the drugs, 21,100 pounds of fentanyl were seized at the Mexican border and only 43 pounds at the Canadian one.

Isn’t it clear where the problem comes from?

Anyway, Trump is trying to protect both borders—or he is just looking for an excuse to impose the tariffs.

Either way, Canada can easily tighten the rules and, hopefully, avoid the trade war.

It won’t be as simple for Mexico, though. So, it is more likely to remain Trump's target number one.

Looking Forward

Even before Trump talked about imposing the tariffs, Canada had already felt the threat.

In anticipation of the possible trade war, the Canadian dollar fell vs the greenback, and businesses began preparing for the worst.

That’s exactly what happened during Trump’s first term when he imposed tariffs on Canadian steel and aluminum exports.

After over a year of tariffs, trade between the US and Canada shrunk by $2.4 billion, or 16% below the historical average.

That’s the amount Canadian steel and aluminum businesses lost during that time. The tariff created very substantial problems for the Canadian steel and aluminum producers.

This time, we’re talking about ALL the goods that cross Canada’s southern border.

Ironically, metals and energy are at the top of the list of imports from Canada. Meaning that not only steel and aluminum are being hit this time, but also oil and gas, as well as other metals.

Under 25% tariffs, Canada’s gross domestic product (GDP) is projected to drop by 2.6% per year, or about C$1,900 per person. The US is expected to lose 1.6% of its GDP or US$1,300 per person.

All else being equal, Canada is likely to get into a recession. At the same time, the US should keep expanding even at a lower pace.

The first round of Trump’s tariffs ended in 13 months, with the US, Mexico, and Canada creating a trade alliance (USMCA). The agreement will be renewed in 2026.

However, if Trump imposes tariffs earlier, that will ultimately break the alliance.

We don’t think this will happen, since Canada and Mexico have already started to outline their investment plans aimed at strengthening their borders.

Still, investors should know both possible outcomes, with or without new tariffs.

The two scenarios

1. Without tariffs, the Canadian economy will remain resilient.

Mining companies will continue exploring and developing new projects and operating existing mines. As usual, most of the metals will end up in the US. After all, Canada has a well-established mining sector with vast mineral resources, supportive laws, and a strong investor base.

The main Canadian stock exchange, the Toronto Stock Exchange (TSX), is home to hundreds of publicly traded mining companies.

2. With full or partial tariffs, the Canadian economy and its mining sector will absorb some damage.

First, the mining companies will have to find new trading routes or negotiate new terms for existing contracts with US customers. That won’t be easy.

With less demand for Canadian metals, miners may curtail some projects and postpone expansions. That would be negative for mining companies operating in Canada.

However, there are plenty of Canadian companies operating abroad. Many of these assets are in the US (largely immune to the tariffs). Those in Mexico, though, may carry higher risks. Those assets outside North America are unlikely to ship their metals or ore to the US anyway, so they are safe from the proposed trade war.

On the other hand, investors should pay close attention to mining companies’ balance sheets and focus on the strongest ones. These will likely survive possible downturns and may create strategic partnerships with peers.

Gold mining companies should be less affected by the tariffs, as their shipments are smaller in volume than those of base metals miners. Thus, they can easily reroute their trade outside the US. Bulk metal producers, however, don’t have such a luxury due to their shipping volumes. Hence, they will be more sensitive to the potential trade war.

Stay tuned for the Canadian Mining Report updates to get coverage on political and investment-related topics that will move the sector in 2025 and beyond.

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