Trump Tariffs Against Canada May Push up Prices in US as Production Costs Likely to Increase
Energy, plastics and aluminum imports likely to become costlier pushing up production cost of consumer products in US
Trade tensions that U.S. President Donald Trump is igniting with customary friends and foes alike around the world is substantially altering global trade landscape. An immediate casualty is the trade relations between the U.S. and long-term ally Canada. President Trump has been riling about a huge trade deficit with Canada with which the U.S. shares the world’s longest unpatrolled border.
President Trump’s 25% tariffs on imports from Canada came into effect from March 4, 2025, and Prime Minister Justin Trudeau has promised retaliation in same measure. The billowing trade war could impact businesses and farmers of both sides, no doubt. One of the major causes of Trump’s anger is the trade deficit with Canada that has been steadily increasing over the years.
The balance of payments deficit was a massive $63.3 billion in Canada’s favor in 2024, which was a 55.9% increase over the previous year’s $40.6 billion. The surge in Washington’s trade deficit with Ottawa came after 29.4% drop in 2023 from $57.6 billion in 2022. Washington enjoyed a positive trade balance with Ottawa only in 2020 when its total exports were more than its imports of a slender margin of $649 million. The improvement in 2020 was from a deficit of $1.1 billion in 2019.
Surge in imports worsened trade deficit
The steady increase in trade deficit through 2019 to 2024 was caused by the increase in imports as the economy reeled from the whiplash of the COVID pandemic. The U.S. imported goods and services worth $412.7 billion in 2024, which was 14.3% less from $481.6 billion in 2023. But the decline in exports to $349.4 billion in 2024 from $440.9 billion in 2023, a drop of 20.8%, did not help improve the trade deficit situation. The U.S. exports have been increasing steadily from 2019 through 2024. From $362.3 billion in 2019, it declined by 14.5% to $309.6 billion in 2020. Exports increased by 18.8% to $367.8 billion in 2021 and further surged by 18.7% to $436.7 billion in 2022. After peaking at $440.9 billion in 2023, it declined to $349.4 billion in 2024.
On the other hand, the imports had a sharper increase, from $363.4 billion in 2019 to $412.7 billion in 2024. The imports amounted to $309 billion in 2020, a 15% drop, that got wiped out in 2021 following a steep 30.7% increase in imports and a subsequent 22.4% rise in 2022 to $494.3 billion. Imports declined slightly by 2.6% to $481.6 billion in 2023 and by 14.3% drop to $412.7 billion in 2024.
Steep import tariffs that Trump has proposed could rein in the runaway trade deficit with Canada, but it could also impact consumer prices because of the increase in production cost.
