As Donald Trump threatens to impose 25% tariffs on Mexico and Canada, uncertainty looms over the North American economy. This situation echoes the tensions of his first term but unfolds in a renewed geopolitical context.
Mexico, under the presidency of Claudia Sheinbaum, seems better equipped to negotiate. Its strategic role in managing immigration and drug trafficking gives it significant leverage. Moreover, despite their apparent differences, Trumpism and Morenismo share certain characteristics: a vision of a strong executive power, criticism of traditional elites, and a prioritization of national interests.
Relations with Canada appear more strained. Deep ideological differences, particularly on issues of diversity, equity, and inclusion (DE&I), complicate dialogue. However, the potential rise to power of Pierre Poilievre and the Conservative Party could change the situation in the coming months.
Sectoral Analysis of Potential Impacts
Oil & Gas
The energy interdependence between the United States and Canada remains a crucial factor. Canada supplies about 50% of U.S. fossil fuel imports, relying on an integrated network of pipelines such as Keystone and Enbridge systems. U.S. refineries, specifically designed to process heavy Canadian crude, make diversification complex and costly. A shift towards OPEC countries would significantly increase geopolitical risks for the United States.
Automotive Sector
The automotive industry perfectly illustrates North American economic integration. With imports representing 15% of total U.S. automobile imports, Canada is a major player in the sector. The production chain is deeply integrated, with parts crossing the border multiple times during the manufacturing process. Canada also holds strategic assets for the sector's future, particularly essential resources for electric vehicles like lithium, nickel, and cobalt.
Vulnerable Sectors
Some sectors appear more exposed to protectionist measures. The agri-food sector, particularly the dairy market, remains a historical point of tension. The steel and aluminum industries, already targeted during Trump's first term, could once again face restrictions. These sectors hold strong symbolic importance in Trump's "Buy American" policy.
Scenarios and Economic Impacts
The most probable scenario favors a differentiated approach:
- High tariffs (up to 25%) on sensitive sectors such as steel and aluminum
- Moderate tariffs on secondary sectors
- Exemptions for strategic industries
- Estimated impact on Canadian GDP: -2% to -3%
A more severe scenario, though less likely, would involve a blanket 25% tariff application. This approach could be motivated by the desire to send a strong message to other trade partners, particularly China and the European Union. In this case, the impact on the Canadian economy could reach -4% to -6% of GDP.
Outlook and Potential Resolution
The resolution of this crisis could hinge on two major events: the Canadian elections and the renegotiation of the USMCA. Washington’s expected concessions would likely involve stricter rules of origin to reduce dependence on China, a commitment not to impose retaliatory tariffs, and enhanced cooperation on strategic supply chains.
Given these uncertainties, Canadian companies must develop adaptive strategies, including diversifying their markets and strengthening their resilience to trade shocks. The ability to anticipate and adapt will be crucial in the coming months.
