Canada to Enforce Retaliatory Tariffs if U.S. Duties Persist

U.S. Imposes 25% Tariffs on Mexican and Canadian Imports

On March 4, 2025, the U.S. President Donald Trump announced that a 25% tariff on imports from Canada and Mexico would take effect starting Tuesday. The decision has reignited concerns over a potential North American trade war, which analysts warn could exacerbate inflation and slow economic growth.

During a press briefing in the Roosevelt Room, Trump justified the tariffs as a measure to combat fentanyl trafficking and illegal immigration from Canada and Mexico. He also emphasized his desire to correct trade imbalances within the Americas and incentivize manufacturing to relocate back to the U.S.

The announcement sent shockwaves through financial markets, with the S&P 500 dropping 2% in afternoon trading on Monday. The tariffs, set to take effect at 12:01 AM EST on Tuesday, reflect Trumps willingness to take economic and political risks despite concerns about potential inflationary pressures and the disruption of long-standing trade partnerships with North American neighbors.

Canadas Response: Retaliatory Tariffs on U.S. Imports

In response to the U.S. tariff implementation, the Canadian Prime Ministers Office issued a statement outlining retaliatory measures.

• Effective Tuesday, Canada will impose a 25% tariff on $30 billion CAD worth of U.S. imports.

• If the U.S. duties remain in place, an additional $125 billion CAD worth of American goods will face similar tariffs after 21 days.

• The Canadian government is actively discussing non-tariff measures with provinces and territories should the dispute escalate.

The reciprocal tariffs are set to take effect simultaneously with the U.S. measures at 12:01 AM EST on March 4, 2025.

Market Reaction

Following the tariff announcement, the CAD/USD exchange rate experienced fluctuations, reflecting investor concerns over the impact on the Canadian economy.

• As of March 4, the CAD/USD pair was trading at 0.6907, showing a 0.08% daily increase but remaining under pressure after a 1.13% drop over the past five days.

• Over a six-month period, the Canadian dollar has depreciated by 6.73%, signaling broader economic uncertainties.

With rising tensions in U.S.-Canada trade relations, market participants will closely monitor any further developments that could influence currency movements and investor sentiment.