RBC: These are the tariffs that are hurting Canada

RBC economist Salim Zanzana said targeted U.S. tariffs on steel, aluminum and auto products are disproportionately impacting Canadian manufacturers, with pressure concentrated in Ontario and Quebec.

In a Sept. 18 report, he warned that new measures on copper, Chinese tariffs on canola and seafood, and expanded duties on steel and aluminum derivatives point to further risks ahead, underscoring the uneven exposure of Canada’s exports.

“While the average effective tariff on Canadian exports is about 3% as of July, lower than most countries, that aggregate figure masks steep variation across product categories,” Zanzana said. Aluminum products faced US$188-million in duties in July, an effective tariff of 32%, the highest among Canadian exports to the U.S. Steel and related articles incurred US$189-million, or about a 29% effective tariff, while vehicles and parts faced US$392-million in duties, averaging 13%.

The hit to manufacturing has been pronounced. Real GDP in the sector contracted 2.2% between January and June, with roughly 58,000 jobs lost. Canadian steel exports to the U.S. fell 22% year-over-year through July, aluminum exports dropped 7%, and vehicles and parts declined 5%.

“Higher U.S. tariffs on steel have also pushed U.S. Midwest steel prices above offshore contracts, weakening demand and leaving Canadian supply in surplus,” Zanzana noted. By contrast, Canadian aluminum exports, while down, have been partially shielded by high U.S. prices and Canada’s dominant 56% share of American imports.

The burden has fallen unevenly across provinces. Ontario and Quebec face the highest average effective tariffs, reflecting their manufacturing-heavy export profiles. Most of Canada’s manufacturing job losses this year have been concentrated in Ontario (59%) and Quebec (22%). Southwestern Ontario cities such as Windsor and Oshawa are showing the highest unemployment rates among major Canadian urban centres, while Quebec’s aluminum exports are down 9.3% so far this year.

Tariff exposure could rise further. In August, the U.S. imposed a 50% tariff on copper products, which RBC estimates will affect about $3.7-billion in annual Canadian exports, $2.7-billion of which originates from Quebec. Additional duties on Canadian lumber add pressure to B.C.’s forestry sector, while Chinese tariffs are weighing on canola shipments from Saskatchewan and seafood exports from Atlantic Canada.

“Manufacturing-heavy provinces such as Ontario and Quebec are experiencing the greatest tariff pressure, but risks are increasingly spread across other regions as global trade tensions evolve,” Zanzana said.

-30-