Trump Imposes 25% Tariffs on Canada, Trudeau Fires Back

On Saturday, Feb 1, 2025, President Donald Trump ignited a trade war with Canada, imposing a 25% tariff on all Canadian imports and a 10% tariff on Canadian energy products. The sudden move threatens to raise prices on cars, lumber, alcohol, household appliances, and more.

Trump signed the executive order at his Mar-a-Lago resort, claiming the tariffs are meant to stop the flow of illegal drugs and undocumented immigrants into the U.S. But many are questioning why Canada—one of America’s closest allies—is being dragged into this. The White House has not given a clear timeline for lifting the tariffs, saying they will remain in place until the crisis is “resolved.”

Trudeau Hits Back With Retaliatory Tariffs

Canada didn’t waste any time responding. Prime Minister Justin Trudeau went on national television just hours later, announcing that Canada will impose its own 25% tariffs on $155 billion worth of U.S. goods.

“Tariffs against Canada will put American jobs at risk,” Trudeau said. “They could shut down auto plants, manufacturing facilities, and raise costs for families on both sides of the border.”

The tariffs will roll out in two phases. On Tuesday, a 25% tariff will hit $30 billion worth of U.S. goods. Three weeks later, another $125 billion in tariffs will be added, giving Canadian businesses some time to adjust. Trudeau also urged Canadians to buy local and reduce reliance on American products, with some provinces even pulling U.S. alcohol from liquor stores.

What’s Getting More Expensive?

With these tariffs in place, consumers on both sides of the border can expect to pay more for everyday goods. Some of the American products that will be hit with Canada’s retaliatory tariffs include:

  • Alcohol, including beer, wine, and bourbon
  • Clothing and footwear
  • Household appliances like washing machines and refrigerators
  • Furniture and construction materials like lumber
  • Fruits, juices, and other grocery staples

At the same time, Americans will likely see price hikes on Canadian imports such as lumber, auto parts, and fresh produce due to the new 25% tariff.

Why Energy Got a Lower Tariff

One of the few carve-outs in Trump’s order is Canadian energy, which will be taxed at 10% instead of 25%. The U.S. relies heavily on Canadian oil, natural gas, and electricity, with Canada supplying about 60% of America’s crude oil imports.

Even at a lower rate, the energy tariffs are expected to drive up gas prices and home heating costs. The American Petroleum Institute has already called for a full exemption, arguing that disrupting the North American energy market will hurt American consumers.

Trade War on the Horizon

Trump’s executive order includes a retaliation clause, meaning if Canada escalates, the U.S. could respond with even higher tariffs. This has set off alarm bells among economists, business leaders, and lawmakers, who fear a prolonged trade war could lead to job losses, supply chain disruptions, and rising prices.

The U.S. Chamber of Commerce slammed the tariffs, calling them a tax on American families. Canada’s auto industry warned that tariffs could shut down production lines, threatening thousands of jobs. Economists largely agree that tariffs don’t hurt the countries being targeted as much as they hurt the country imposing them, since businesses pass the extra costs on to consumers.

What Happens Next?

With neither side backing down, tensions between the U.S. and Canada are heating up fast. Trudeau has made it clear that Canada is ready to fight back, and if the U.S. escalates, Canada is prepared to go even further.

For now, Americans and Canadians alike should brace for higher prices at the grocery store, gas pump, and retail shelves. If the trade war continues, job losses and supply chain disruptions may not be far behind.

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AUTHOR

Christopher Liew, CFA, CFP®

As the founder of Blueprint Financial, Christopher leads a team dedicated to creating custom plans that fit your unique goals. Together, they work to help you secure your financial future and enjoy the lifestyle that you’ve worked so hard for.
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