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

Note: On February 3, 2025, Prime Minister Justin Trudeau announced that Canada-US tariffs will be paused for 30 days. We will update this article as new information becomes available. This article has since been updated on February 21, 2025.

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. On Saturday, February 1, Trump ordered 25% tariffs on Canadian imports to the US, to begin Tuesday, February 4. Prime Minister Justin Trudeau then delivered a speech announcing retaliatory 25% tariffs on American imports.

While both sides have temporarily reached an agreement to put the tariffs on hold, Trump continues to lobby threats of new tariffs on Canada and other countries. On February 18, 2025, Trump threatened to add a 25% tariff on all auto imports, to go into effect on April 2, 2025.

What would a trade war — or even the threat of one — 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, announced retaliatory measures that were initially slated to begin Tuesday, February 4. Canada would impose 25% tariffs on about $30 billion worth of American goods, and the tariffs would have be applied to another $125 billion worth of American imports in three weeks’ time.

The government is also considering non-tariff trade action, such as restricting exports of critical minerals and energy products to the U.S. and a move to block American companies from bidding on government contracts. In a statement, Ontario’s Progressive Conservative Party Leader Doug Ford said that he would be banning American companies from provincial contracts, including backing out of the province’s $100M contract with Starlink to provide satellite internet to remote communities.

While officials have suggested that the revenues from any Canadian retaliation could be redistributed to impacted sectors, everyday Canadians would still be hit hard: in a report from BMO, its chief economist Douglas Porter estimated that the country could face a modest recession and a growth in the unemployment rate to around 8%. There could also be more interest rate cuts by the Bank of Canada amid the expected economic slowdown.

While a temporary delay on the US tariffs was reached on February 3rd, threats still loom over the Canadian economy. On February 18, Donald Trump said he has plans to add a 25% tariff on all auto imports starting April 2nd—a move that could severely hit Canada’s auto industry and raise costs for drivers. 

It is not clear whether this tariff will be in addition to the paused 25% tariff on all Canadian products, and the 25% tariffs on steel and aluminum. If so, that would mean a total 75% tariff on Canadian-made vehicles. 

Fortunately, nothing has been implemented yet. However, it’s best to stay ahead of potential rising costs. If the auto import tariff does come into effect, Canadians are looking at higher prices for purchasing vehicles, car parts, maintenance, and eventually, it will impact Canadian auto insurance rates.

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.

Review your auto insurance policies 

With the auto industry at risk of facing serious challenges, it’s not a bad time to consider shopping for a cheaper auto insurance rate before any further increases to pricing come into effect. The impact of the tariffs may not be fully felt this year, but it surely will in the years to come, as the industry plays catch up on recouping against added expenses. 

Review your auto insurance policies to make sure you’re getting the most comprehensive coverage at the lowest rate tailored to your needs.

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.”

In this stormy economic season, make it your priority to stay afloat financially. When things clear up in the future, you'll be in a better position to build your wealth.

Also read:

• How could 25% US tariffs impact Canadian mortgage rates?
• 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