How U.S. tariffs could affect Canada’s agriculture industry and consumer prices

President-elect Trump recently threatened Canada and Mexico with 25 per cent tariffs.

Canada has responded swiftly, with Prime Minister Justin Trudeau touting the need for a united front to deal with the new administration and flying to dine with Trump at Mar-a-Lago.

Brace for higher prices

The Canadian food supply chain is very integrated with the U.S., said J.P. Gervais, chief economist at Farm Credit Canada.

Tariffs — which are levied on goods from other countries — would raise the cost of doing business and squeeze profits for Canadian producers, said Gervais. They could introduce more volatility into the market and make it harder for companies to make new business plans and investments, he said.

“We’ve tried over the years to diversify our export base, and we’ve managed to do it to some extent, but the reality is that we rely a lot on the United States,” said Gervais.

“So the consequences from an economic standpoint would be negative, definitely.”

Canola is one of the big Canadian exports that would be hurt by tariffs.

The U.S. is the biggest market for Canadian canola, said Davison. In 2023, Canada exported about $8.6 billion in canola to the U.S., with about $6.3 billion of that being canola oil and the rest meal and seed, he said.

Canadian beef is also caught up in the uncertainty. The majority of our beef and live cattle exports go to the U.S., said Dennis Laycraft, executive vice-president of the Canadian Cattle Association: about $6 billion worth, versus $1 billion to the rest of the world.

Laycraft and Davison said if the tariffs were enacted, producers would start looking to other export markets as they deal with price pressure and restricted access.

“We have very good market access, particularly in Asia, which has strong demand,” Laycraft said.

“But you don’t just replace a huge market like the United States.”

Market watchers have warned that U.S. consumers could be in for higher inflation as a result of Trump’s protectionist bent.

“I think initially the impact would be toward the U.S. citizens and the purchasing cost of those products, but eventually that would blow back onto the farmers here in Canada,” said Keith Currie, president of the Canadian Federation of Agriculture.

But the impact would eventually make its way to Canadian consumers too, said Arrell Food Institute director Evan Fraser.

He noted the Canadian dollar has already lost ground against the greenback since Trump’s election, which over time would add inflationary pressure on imports from the U.S.

Canada heavily relies on the U.S. for certain food items, said Fraser, like produce — especially during the winter.

Negotiating strategies

The last time Trump was president, the long-standing North American Free Trade Agreement was scrapped and replaced by the Canada-United States-Mexico Agreement.

Currie hopes the agreement, which is up for review in 2026, will help guide talks over tariffs.

“There are … dispute resolution mechanisms within that agreement. So putting tariffs on products that are supposed to be allowed through a free trade agreement is counter to what the agreement says.”

Experts have said the threats are unlikely to become reality, but that it’s still important to take them seriously as they’re likely part of Trump’s negotiating strategy.

“Trump huffs and puffs a lot, but whether he comes forward with actually putting tariffs on our products will remain to be seen,” said Currie.

“The new president may think that he’s doing right by his citizens,” he added, but “the reality is he’s going to affect his businesses as well because of the integration of our two systems.”

‘Harder, not easier’

Trump’s election and his protectionist promises are part of a bigger shift that will influence the Canadian agri-food sector for years to come, said Fraser.

He calls it “an age of disruption.”

After decades of expanding trade in the name of globalization, “we’re moving into what I might call a frothy period of history, where climate change and energy price volatility and challenges around supply chains and constrictions around labour … all of these things are going to become harder, not easier,” said Fraser.

Because of this, he expects more so-called nearshoring in the coming years as export-led growth and globalization lose their footing, meaning the economic argument will be stronger to invest in local processing and manufacturing.

The canola industry has already been working for a few years to mitigate potential trade disruptions, said Davison.

“Probably the biggest thing that our industry has done over the last few years, and is continuing to do, is expanding our own canola processing capacity here in Canada,” he said.

Canada may not be able to replace the U.S. as a trading partner, but it can further diversify its agri-food exports, added Laycraft.

“It certainly helps to have markets where you can in the short term move more product, and longer term, we do believe we’re going to see our market share growing in the Pacific region,” he said.

The canola industry is also eyeing other markets, said Davison, including countries in the Indo-Pacific that have growing feed industries.

“We’re always looking at opportunities for diversification,” he said.

“But … when you’re talking about high-value markets of the size of the United States, for example, those kinds of markets don’t grow on trees.”

This report by The Canadian Press was first published Dec. 10, 2024.

by Canadian Press

How U.S. tariffs could affect Canada’s agriculture industry and consumer prices

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