Key points

• The federal government announced yesterday that it is implementing “dollar-for-dollar” Canadian counter-tariffs in response to U.S. Section 338 tariffs to take effect starting September 8.
• The counter-tariffs will put upward pressure on inflation, but this will be partially mitigated by efforts to switch to Canadian and overseas suppliers. 
• The impact of U.S. tariffs and counter-tariffs will be felt unevenly across sectors and businesses. Trade uncertainty has a larger effect than tariffs themselves, and the main risk comes from an escalation in the trade war. 

The federal government is imposing “dollar-for-dollar” counter-tariffs ranging from 15% to 50% on a list of over 700 specific U.S. goods starting on September 8. This is being done in response to the new set of U.S. tariffs on Canadian goods that went into effect on August 22.

It’s estimated that $27.6 billion worth of Canadian goods are subject to the new U.S. tariffs, so Ottawa is imposing counter-tariffs on $27.6 billion worth of U.S. goods.

Canada imported $362 billion worth of products from the U.S. last year, so that $27.6 billion works out to 7.6% of Canada’s total imports from the U.S.

In response to the U.S. tariffs, the federal government has announced a new $7.5 billion support package for Canadian workers and businesses. The package includes liquidity support for businesses; greater access to the Business Development Bank of Canada’s tariff-related programs; $2 billion for the Canada Strong Diversification Fund; $3.5 billion for Employment Insurance and training.

By raising import costs, the counter-tariffs will have a dampening effect on economic activity, partly mitigated by new business supports and a shift (where possible) to non-U.S. suppliers. Overall, we expect that the new U.S. Section 338 tariffs, when combined with Canadian counter-tariffs and support programs, will result in roughly a half a percentage point reduction in Canadian GDP growth, with the largest impact in 2027.

An important distinction needs to be made when describing the impacts. While the macroeconomic effects of the tariffs are estimated to be moderate, the microeconomic effects on impacted businesses and consumers will be significant.

For example, the new 50% U.S. tariff on Canadian honey could be catastrophic to Canadian honey producers who rely heavily on U.S. sales. Similarly, the 50% Canadian tariff on U.S. drill pipe could cost Canadian companies that import it a lot of extra money if they cannot find a non-U.S. supplier.

Inflationary impact

The Canadian counter-tariffs on things like U.S. food products, clothing, and household appliances will put upward pressure on the Consumer Price Index (CPI). Part of the impact will be mitigated by the ability of Canadians to substitute similar products from non-U.S. sources, though these prices might also increase due to the rise in demand.

A Bank of Canada study of the counter-tariffs imposed in 2025 found that the prices of the affected products increased by 6%, or roughly one-quarter of the 25% counter-tariff rate. If a similar impact is observed, we estimate the impact on Canadian inflation will be roughly 0.2-0.3 percentage points.

We anticipate the Bank of Canada will look past a short-term inflation bump from counter-tariffs and not raise its policy rate. As such, in the absence of further escalation, we retain our view that the Bank of Canada will stay on hold through 2026.

What U.S. products are being tariffed by Canada?

The federal government says that it selected the products to tariff based on what the U.S. had previously tariffed (known as Section 232 tariffs—steel, aluminum, copper, autos, etc.) and the new tariffs it imposed over the weekend (known as Section 338 tariffs). Minister of Industry Mélanie Joly told reporters that the products were also selected to generate political pressure within specific states.

The list of products with new and increased tariff rates is long at 893 and includes everything from frozen salmon and coils of steel to plywood and dishwashers.

The counter-tariffs fall under three tiers:

1. 50% - Driven primarily by U.S. primary steel and aluminum, which were bumped from 25% to 50% to match U.S. rates. Also covers consumer electronics, furniture, and apparel. 
2. 25% - Bulk commodity groups including dairy and cheese, agricultural machinery, major home appliances, wood/paper products, and steel/aluminum derivatives. 
3. 15% - Secondary commercial items, including electric equipment, power tools, and commercial lighting.

Our estimates of the value of the new counter-tariffs, organized by major product category and tariff rate,  are shown in the chart below.

Answer to the previous trivia question: France is the world’s most popular tourist destination with over 100 million tourist arrivals in 2024.

Today’s trivia question: What is the largest steel-producing company in the world?