As Trump’s tariff threat looms, what would a US-Canada ‘trade war’ mean?

Donald Trump is less than a month away from being sworn in as the next president of the United States, and the Republican leader is set to usher in a number of serious domestic and foreign policy shifts.

In advance of Trump’s inauguration on January 20, countries around the world have been preparing for another “America First” administration that could drastically alter their relationships with Washington.

Last week, Canadian Finance Minister and Deputy Prime Minister Chrystia Freeland resigned over a disagreement with Trudeau over how to handle Trump. She said Canada needed to take the threat of tariffs “extremely seriously” and warned of “a coming trade war” with the US.

But is a “trade war” actually looming? What would imposing 25-percent US tariffs on Canadian goods and services mean for both Canada and the United States? And will Trump really follow through on his threat?

First off, what did Trump say exactly?

In a post on Truth Social on November 25, Trump said he planned to “charge Mexico and Canada a 25% Tariff on ALL products coming into the United States”.

“This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!” the Republican president-elect wrote.

“Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem. We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!”

How did Trudeau respond?

The Canadian prime minister spoke to Trump the same evening that he threatened the tariffs.

“We talked about some of the challenges that we can work on together. It was a good call,” Trudeau told reporters the next morning.

“This is a relationship that we know takes a certain amount of working on, and that’s what we’ll do,” he said, adding that he stressed to Trump the importance of maintaining strong ties between Canada and the US.

In late November, Trudeau made a surprise visit to Mar-a-Lago, Florida, for talks with the US president-elect about the way forward. The Canadian government also unveiled a series of measures last week that it said would bolster security at the US-Canada border.

But while the prime minister has urged Canadian opposition leaders and provincial premiers to join a united “Team Canada” approach to the incoming US administration, he remains under pressure to do whatever it takes to avoid the tariffs.

How important is the US-Canada trade relationship?

Last year, the US and Canada exchanged $2.7bn ($3.6bn Canadian) in goods and services daily across their shared border, according to Canadian government figures.

“Many of these goods involve co-investing and co-development making our networks highly integrated,” the government said.

According to US Census Bureau data for 2024, through October, the US exported more than $293bn worth of goods to Canada while imports from its neighbour totalled nearly $344bn.

That made Canada the US’s second-largest trading partner behind Mexico, accounting for 14.4 percent of total trade.

The two countries also are signatories to the US-Mexico-Canada trade agreement (USMCA), a trilateral deal completed during Trump’s first term in office that updated the longstanding North American Free Trade Agreement (NAFTA).