How US tariffs on Canada could impact you — and what you can do

This is a developing story; we will update this article as new information becomes available.

United States President Donald Trump’s second term in office has begun, and it already looks like US-Canada relations are going to be fraught. While the threatened 25% tariffs on Canadian exports haven’t been implemented yet, Trump said Monday evening that he thought they could be in place as soon as February 1. 

What does this mean for the Canadian economy? More importantly, is there anything you can do for your own financial security? Let’s dive in. 

A tariff is essentially a tax that a country levies on imports or exports of goods with foreign countries. For instance, Canada’s biggest exports to the US include fuels, vehicle parts and machinery. 

If a 25% tariff is imposed on imports from Canada, US importers have to pay those tariffs, making the goods 25% more expensive. This cost may be passed on to US consumers, but Canadian consumers may be impacted as well if products made with Canadian materials and parts are exported back to Canada.

In addition, US importers will likely try to negotiate with Canadian exporters for a cheaper price, or switch to importing goods from another country with lower prices and/or tariffs. Either way, Canadian businesses will take a hit, and this might lead to job losses and a weakened Canadian dollar.

Canadian officials, from Prime Minister Justin Trudeau to the various provincial leaders, have already voiced their plans to take retaliatory measures. These include immediate retaliatory tariffs on consumer goods like food and liquor, a round of retaliatory tariffs on about $37 billion worth of American goods, and further consultations on tariffs covering another $110 billion or so of American imports if necessary.

In the most extreme case, Canada could impose a tax on energy exports or even an energy embargo, but experts have warned against this. The Canadian Federation of Independent Business (CFIB) says that a tariff war would lead two-thirds (65%) of small businesses to increase prices for consumers. 

While officials have suggested that the revenues from any Canadian retaliation could be redistributed to impacted sectors, everyday Canadians would still be hit hard: the Canadian Chamber of Commerce reports that a 25% tariff could shrink Canada’s GDP by 2.6%, costing Canadian households an average of $1,900 annually.

Amid any political and economic uncertainty, the only thing you can be sure of is your personal finances. Here are a few things you can do to get ready for a worst-case scenario, which may include a loss of income:

Build up your emergency savings

It’s always prudent to save for a rainy day. If the threatened tariffs are imposed, you’ll want to make sure you can survive six to 12 months of unemployment and price hikes. Review your budget, see if you can spend less and save more in your emergency fund, and put it all in a high-interest savings account where you can readily access your funds if needed.

If you’re currently in debt, make paying it off your top priority.

Balance market volatility with low-risk investments 

Even though the stock market rallied in the aftermath of the US presidential election, Trump’s potential tariffs (and overall unpredictable moves) will bring significant volatility to the market. If your risk appetite is low, GICs offer modest returns compared to stocks, funds, and crypto — but they’re also the best option for stress-free investing. 

Consider purchasing GICs through a tax-sheltered account like your TFSA or RRSP to get the most out of your investment and ensure the rates can help you combat inflation. Alternatively, you could also invest in funds that are based on high-interest savings or bonds.

If you already have long-term investments, there’s no harm in keeping them as long as your portfolio remains at the same risk level or becomes lower-risk.

Lock in a rate if your mortgage is due for renewal

If your mortgage is up for renewal this year, you might want to start the process sooner rather than later. Most lenders will allow you to begin your mortgage renewal 120 days prior to your actual term end, which gives you the chance to take out a rate hold. Doing so will guarantee you access to the lowest rate available to you today for up to 120 days, even if fixed interest rates rise, or lenders narrow the spreads to prime on their variable mortgage rates.

Overall, variable-rate mortgages, which are tied to the overnight rate, could fall further if the Bank of Canada follows through with further rate cuts. There’s also a possibility that the central bank will need to cut its rate much more aggressively this year than previously thought, should Canada enter a recession as the result of tariffs. While this will provide additional rate relief, the accompanying job loss and economic pressures could put borrowers further at risk. A variable mortgage rate also poses more uncertainty to your finances compared to a fixed-rate mortgage.

Fixed-rate mortgages are tied to the bond market, and since bond yields are on the rise (due to investor unease over tariffs and resulting inflation growth), mortgage rates are likely to follow suit. If you’re looking to rid yourself of anxiety over fluctuating rates, now’s a good time to secure a 3-year or 5-year fixed rate.

While Trump’s declared tariffs on Canada remain unimplemented for now, it’s best to approach your finances with pessimism. After all, economists highlight that Canada’s economy has been underperforming. Stéfane Marion, chief economist at National Bank of Canada, remarked at an event that “we have a stinker of an economy.”

If things turn out better than expected, you’ll find yourself more financially secure and can look towards growing your wealth.

Also read:

• How will a second Donald Trump term impact the Canadian economy?
• Canada’s 2024 Fall Economic Statement: What you should know
• The best GIC rates in Canada 2025