Countermeasures against US tariffs “self-damage 800” Oxford Institute of Economics: Canada's economic output may decrease by 0.3% in 2027

Canada's current countermeasures will levy 15% to 50% tariffs on imported goods from the US worth about 27.5 billion Canadian dollars (19.8 billion US dollars) each year, involving hundreds of products such as machinery, paper products, furniture, plastics, steel, and aluminum.

Canadian Prime Minister Carney previously announced retaliatory measures in response to US President Trump's August 22 decision to impose 50% tariffs on about 20 billion US dollars of Canadian goods. The Canadian government hopes to help Canadian companies expand their domestic market share by raising the cost of imported goods from the US to create a more favorable competitive environment for local producers.

However, the Oxford Institute of Economics believes that this protective effect requires an obvious economic cost. The agency's economists Tony Stillo and Michael Davenport said, “Canada's new retaliatory tariffs will help some industries, but they will hurt most industries and weaken national economic growth by increasing producer and consumer costs.”

The study predicts that this round of countermeasures will increase Canada's actual effective tariff rate on US goods by 2.7 percentage points to 5.1%. Among them, US steel products will be the most affected commodity category. Many related products have now been subject to retaliatory tariffs of 25% by Canada, and the tax rate will be further doubled to 50% after the implementation of the new measures.

In contrast, the Oxford Institute of Economics estimates that the actual effective tariff rate currently imposed by the US on Canadian goods is about 6.9%.

From a regional perspective, Canada's provinces have been unevenly affected by the escalation of the trade war. The Oxford Institute of Economics believes that Ontario and Quebec are likely to be hit the hardest, mainly because these two provinces have concentrated a large number of manufacturing enterprises affected by the current tariff measures.

Canada's Maritime Provinces and British Columbia are also likely to face significant pressure. However, unlike Ontario and Quebec, which are mainly impacted by manufacturing, these regions are more indirectly affected by the consumer side.

As tariffs push up commodity prices and residents' actual purchasing power declines, this will further affect the local economy, which is dominated by the service sector. In contrast, Alberta, Saskatchewan, and Newfoundland and Labrador, which account for a relatively high share of the energy industry, are expected to be less affected.

The Oxford Institute of Economics predicts that, based on the impact of the US imposition of tariffs on Canada, Canada's retaliatory measures, and the federal government's introduction of a financial aid plan, Canada's 2027 economic output may be about 0.3% lower than the original benchmark forecast.

This means that even if some Canadian manufacturing companies can expand their domestic market share due to rising prices of imported goods, the negative impact on the overall economy may still exceed the protection benefits obtained by these industries.

One important reason is that many Canadian companies themselves also rely on machinery, steel, aluminum, plastics, and other production materials imported from the US. Therefore, raising import tariffs will not only increase the cost of US goods entering the Canadian market, but may also directly increase the production costs of Canadian companies themselves, which will eventually be further transmitted to consumers.

To mitigate the impact of the trade war on businesses and the job market, the Carney administration also launched a 7.5 billion Canadian dollar federal aid program to support businesses and workers affected by tariffs.

However, the Oxford Institute of Economics believes that fiscal stimulus can only temporarily relieve some of the pressure and cannot fully offset the overall economic losses caused by the US and Canada's higher tariffs. Stillo and Davenport said that the federal government's financial aid will cushion the negative economic impact of the trade war in the short term, but it will not be enough to offset the overall drag brought about by the new round of bilateral tariffs between the US and Canada.

In other words, the Canadian government is actually mitigating the impact of the trade war on some industries and jobs through fiscal spending, but at the same time, the tariffs themselves are still increasing the production and consumption costs of the entire economic system.

In addition to economic growth, Canada is likely to face new price pressures. The Oxford Institute of Economics predicts that Canada's retaliatory tariffs will push up consumer prices and producer prices by increasing the cost of imported goods and means of production. Research estimates that by 2027, countervailing tariffs may cause Canadian consumer price levels to be 0.5 percentage points higher than the benchmark forecast, while producer prices are 0.2 percentage points higher.

However, the imposition of tariffs on Canadian goods by the United States itself may have a deflationary effect by weakening Canadian export demand and economic activity, thus partially offsetting the price increase caused by Canada's countermeasures.