Trump’s 50% tariffs on Canada are an approximate 2.5% effective rate increase, less severe than headlines suggest: Economist

U.S. President Donald Trump’s move to impose 50 percent tariffs on a range of Canadian exports has sparked alarm across the country. But according to a leading trade economist, the actual economic impact may be far less dramatic than the eye-popping headline number suggests. On Monday, Trump signed three proclamations under Section 338 of America’s Tariff Act of 1930—a provision unused for decades—imposing the new duties in response to what the administration calls Canada’s discriminatory treatment of American motor vehicles, alcohol, and dairy products. As CNBC reported, the tariffs are set to take effect in mid-August, 30 days after the signings, and cover products ranging from wine to hockey sticks to cement, along with food, clothing, and wood products. Energy, potash, and goods already subject to sectoral tariffs are exempt, but the measures apply regardless of whether goods qualify for tariff-free treatment under CUSMA—a point Prime Minister Mark Carney seized on in calling the tariffs a “direct violation” of the agreement. The Hub spoke with Joseph Steinberg, associate professor of economics at the University of Toronto, to better understand the real implications of this latest trade action. The tariffs would raise Canada’s average effective tariff rate by only 2.5 percentage points The 50 percent figure has dominated headlines, but Steinberg’s analysis reveals a more nuanced picture. “This tariff threat will cover something like 5.5 percent of our exports that are currently largely not facing any tariffs at all,” he explained, noting those goods currently enter the U.S. under CUSMA rules and are therefore exempt from the U.S.’s global tariff regime. “Fifty percent tariffs on an additional roughly 5 percent of our exports, you should expect that to raise the average effective tariff on our exports by something like 2.5 percentage points.” With Canada’s current effective tariff rate sitting in the mid-single digits, by Steinberg’s estimate, the new measures could push the blended rate on Canadian exports “pretty close to something like 10 percent.” That is significant, but far from catastrophic—and important context for policymakers and businesses trying to assess their exposure. Canada’s biggest export categories remain protected A critical detail often lost in the coverage is which exports are actually affected. “The biggest categories of our exports are either maintaining complete exemptions from tariffs or not getting hit with additional tariffs under this new executive order,” Steinberg noted. Steel, aluminum, and automotive exports—which face existing sectoral tariffs—will not see the 50 percent rate stacked on top. Perhaps most importantly, oil exports remain completely exempt. These categories represent the bulk of Canadian exports to the U.S., meaning the new tariffs target 5 percent of our exports that haven’t been hit with anything yet, according to Steinberg. The macroeconomic impact should be minimal While acknowledging that specific firms and industries will face serious challenges, Steinberg does not believe the tariffs pose a systemic economic threat. “Certainly, individual industries concentrated in certain regions, there’ll be certain firms in these industries that are going to be highly exposed to these tariffs. Fifty percent is a huge number for a firm that sells most of its output to the United States, so, undeniably, there is going to be an economic hit at the micro level,” he said. “But, you know, at the macro level, I don’t think we should be prepared to see anything material.” Approximately 15 percent of Canada’s economy is directly exposed to U.S. trade by Steinberg’s calculations, though he cautioned that much of the economy is also indirectly exposed through services that feed into manufacturing. Still, the incremental nature of these new measures limits their broader impact. “This additional 5 percent at the margin is not going to move the needle much,” Steinberg explained. Canada’s retaliatory alcohol tariffs may be counterproductive Steinberg offered pointed criticism of Canada’s provincial alcohol embargoes, which were imposed in March 2025 in response to Trump’s initial tariffs and never modified after most of those tariffs were walked back. “I think the provincial alcohol embargoes are flatly a violation of CUSMA,” he said. “It’s retaliatory—that’s a violation.” CUSMA’s dispute settlement mechanism, he noted, “explicitly forbids retaliatory tariffs.” More importantly, the measures appear ineffective. “We’ve been trying this for more than a year now. It’s not clear to me that we have accomplished anything,” Steinberg observed. He contrasted Canada’s approach with Mexico’s strategy of avoiding retaliation altogether, questioning whether Canada’s more confrontational stance has yielded any advantage. “I think you have to ask yourself: do we know something that the Mexicans don’t?” The embargoes, he suggested, are “in large part for domestic political consumption” and “have not been effective” at solving the trade rift—even if they’ve been effective at garnering political support for the governing Liberals. A measured response is needed Rather than escalating with additional counter-tariffs, Steinberg advocates for a rational approach—which includes “not letting ourselves feel the need to perhaps erect counter-counter tariffs.” He warned that U.S. Trade Representative Jamieson Greer likely has a broader set of tariff measures in his back pocket if Canada ramps up retaliation. Steinberg suggested Canada should “provide some willingness to deal with the Americans on some of these issues that they have complained to us about, in part because I think that some of these complaints have some real validity.” “This is a moment where we need to remain rational and not let our emotions get the better of us,” he said. His advice: “Look these tariffs in the face and say they’re not going to hurt us much. We understand that you have some complaints, but we’re going to continue to deal with those complaints in a rational manner.” U.S. President Donald Trump’s imposition of 50% tariffs on various Canadian exports has raised concerns, but economist Joseph Steinberg suggests the actual economic impact may be less severe than it appears. The tariffs, effective mid-August, primarily affect around 5% of Canadian exports, raising the average effective tariff rate by approximately 2.5 percentage points. Key export categories, including oil and automotive, remain exempt. While some industries may face challenges, the overall macroeconomic impact is expected to be minimal. Steinberg advocates for a rational response rather than retaliatory measures to address trade tensions. Comments (1) How do the new tariffs affect Canada's overall export economy? What are the implications of Canada's retaliatory alcohol tariffs? What should Canada consider in response to U.S. tariff measures?