President Trump raised broad import duties on Canada in stages through 2025. A 25% baseline in early spring was followed by steeper moves on metals and a jump to 35% on many Canadian goods at the start of August. Metals face a separate 50% rate, and auto-related items saw new national-security actions. Ottawa then responded with counter-tariffs, then pared many of them back while keeping pressure on metals and autos.
The shock is already visible in trade flows. Canada’s share of exports going to the U.S. dropped from roughly three-quarters last year to about two-thirds in May, as firms raced to re-route or re-qualify under USMCA. Exports to the U.S. are still falling year-to-date, while sales to the rest of the world are up.
As a 3PL catering to businesses both north and south of the border, we take a timely look into what’s actually at risk for Canadian consumers & companies alike. While we can’t anticipate policy maker moves in 2025, we can at least establish the outlines of what could be impacted.
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How Canada Earns its GDP
Expenditure view
Canada’s economy is service-heavy and consumption-led. Exports matter a lot because the market is small and open.
| Component | What it is | 2024–25 signal |
|---|---|---|
| Household consumption | Spending by residents on goods and services | Still growing, though slower in Q1 2025 as vehicle purchases cooled (Statistics Canada). |
| Business investment | Machinery, equipment, structures, intellectual property | Soft in Q2 after front-running in Q1 ahead of tariff deadlines. |
| Government spending | Federal, provincial, municipal | Picked up through mid-2025. |
| Net exports | Exports minus imports | Exports equal about one-third of GDP; tariff frictions turned this into a headwind in Q2. |
Rule of thumb: exports of goods and services equal about 32% of GDP, so trade shocks can move the macro needle.
Industry view
Services drive roughly three-quarters of output. In 2024, services grew while goods barely advanced. The largest single industry is real estate and rental and leasing, followed by manufacturing and resource extraction.
What Got Hit First in 2025
- Transportation equipment (autos and parts). April GDP by industry recorded the sharpest monthly decline in this subsector since 2021. Supply chains and new U.S. auto-related measures are the pressure points. Statistics Canada
- Steel and aluminum. The rate was pushed to 50% for a broad set of items, with Ottawa and industry discussing temporary support if that persists. Reuters+1
- Softwood and other wood products. Output contracted in Q2 alongside housing-linked demand risk in the United States. Yahoo Finance
Macro prints line up with this pattern: Q1 2025 ticked up on a pre-tariff export surge and inventory build, while Q2 looks weaker as exports and investment cooled. The Bank of Canada’s July report sets growth around 1% in the second half under current tariffs.
Canada’s export exposure to the U.S.
- 2024: about 75.9% of exports went to the U.S.
- May 2025: fell to 68.3%, one of the lowest shares on record, as firms diverted where possible and tightened USMCA compliance. Statistics Canada
Diversification helps at the margin, but the U.S. still absorbs the bulk of Canadian sales. Year-to-date, exports to the U.S. are down while shipments to the rest of the world are up double digits.
Which parts are most at risk if the tariff situation worsens?
| Sector | Direct tariff exposure | Why it’s vulnerable | Risk next 6–12 months |
|---|---|---|---|
| Autos and parts | High | New and potential national-security tariffs on parts, complex rules of origin, tight just-in-time networks | High. Any escalation hits Ontario and Quebec suppliers first (Reuters). |
| Steel and aluminum | Very high | 50% rate crushes margins; pass-through to U.S. buyers is limited | High. Prolonged rates mean layoffs or idling. |
| Wood products | Medium-high | Price-sensitive, tied to U.S. housing; already contracting | Medium-high. Weakness persists if housing slows (Yahoo Finance). |
| Machinery, chemicals, plastics | Medium | Integrated North American production; input costs and compliance costs rising | Medium. Dependent on U.S. capex cycle (Statistics Canada). |
| Agriculture and food processing | Mixed | Some items insulated under USMCA, others face quota or rules-of-origin friction | Medium. Policy specificity will matter. |
What Could Be More Insulated
Domestic services that sell locally rather than across the border feel the shock later and indirectly. Real estate, public administration, health care, education, and many personal services fall in this bucket. Services led growth in 2024 and continue to do the heavy lifting.
Energy has been less exposed than metals and autos in the current configuration, helped by earlier carve-outs and the high share of exports that still clear under USMCA rules. That is conditional. If coverage narrows or enforcement tightens, the cushion can vanish.
What the Data Says so Far (Midway through 2025)
- Outlook: the Bank of Canada projects roughly 1% growth in H2 2025 under current tariff settings, with uncertainty elevated.
- Q1 2025: real GDP up 0.5% quarter-over-quarter, driven by goods exports and inventory build. Statistics Canada
- April 2025: GDP by industry fell; transportation equipment led the drop.
- Q2 2025: multiple trackers point to a pullback led by exports and manufacturing; wood and transport equipment were notable drags.
