Countermeasures against U.S. tariffs may "harm ourselves by 800." Oxford Economics: Canadas economic output may decrease by 0.3% by 2027.

The Oxford Economics Institute has warned that Canadas new round of retaliatory tariffs against the U.S., set to take effect on September 8, could protect some domestic manufacturers, but overall may lead to increased cost pressure across more industries and weigh down Canadas economic growth. The agency predicts that the combined impact of U.S. tariffs, Canadas countermeasures, and federal government assistance programs could result in Canada's economic output being about 0.3% lower than baseline forecasts by 2027. This countermeasure will impose tariffs ranging from 15% to 50% on U.S. imports worth approximately CAD 27.5 billion (USD 19.8 billion) annually, affecting hundreds of products including machinery, paper products, furniture, plastics, steel, and aluminum. Canadian Prime Minister Carney previously announced these retaliatory measures in response to U.S. President Trump's decision on August 22 to impose a 50% tariff on approximately USD 20 billion worth of Canadian goods. The Canadian government aims to create a more favorable competitive environment for domestic producers by raising the costs of U.S. imports, thereby helping Canadian companies expand their domestic market share. However, the Oxford Economics Institute believes that this protective effect comes at a significant economic cost. Economists Tony Stillo and Michael Davenport stated, Canadas new retaliatory tariffs will help some industries but will hurt the majority of sectors and weaken national economic growth by raising costs for producers and consumers. The research estimates that this round of countermeasures will raise the effective tariff rate on Canadian imports from the U.S. by 2.7 percentage points to 5.1%. U.S. steel products are expected to be the most affected category. Many related products are already subject to a 25% retaliatory tariff imposed by Canada, and after the new measures are implemented, the rate will increase to 50%. In comparison, the Oxford Economics Institute estimates that the current effective tariff rate imposed by the U.S. on Canadian goods is around 6.9%. Regionally, the impact of the trade war escalation is not evenly distributed among Canadian provinces. The Oxford Economics Institute believes that Ontario and Quebec are likely to be the most affected, as these provinces host a large number of manufacturing businesses that are impacted by these tariff measures. The Maritime provinces and British Columbia may also face significant pressures. However, unlike Ontario and Quebec, which are primarily affected by manufacturing impacts, these regions are more likely to experience indirect effects on the consumption side. As tariffs push up product prices, residents real purchasing power declines, further impacting local economies that are primarily service-oriented. In contrast, provinces such as Alberta, Saskatchewan, and Newfoundland and Labrador, which have a higher proportion of energy industries, are expected to suffer relatively less severe shocks. The Oxford Economics Institute predicts that, factoring in the impact of U.S. tariffs on Canada, Canadas retaliatory measures, and the federal governments financial assistance program, Canadas economic output may be about 0.3% lower than the original baseline forecast by 2027. This means that even if some Canadian manufacturing firms can expand their domestic market share due to rising import prices, the overall negative impact on the economy may still outweigh the benefits gained from protection for these industries. One important reason is that many Canadian companies also rely on imported machinery, steel, aluminum, plastics, and other production materials from the U.S. Therefore, raising import tariffs not only increases the cost of U.S. goods entering the Canadian market but may also directly raise the production costs for Canadian businesses themselves, ultimately passing through to consumers. To mitigate the impact of the trade war on businesses and the labor market, the Carney government has also launched a CAD 7.5 billion federal assistance program to support firms and workers affected by the tariffs. However, the Oxford Economics Institute believes that fiscal stimulus can only temporarily alleviate some pressures and cannot fully offset the overall economic losses caused by the tariff increases on both sides. Stillo and Davenport stated that while federal government financial assistance may cushion the negative economic effects of the trade war in the short term, it is insufficient to counterbalance the overall drag imposed by the new round of bilateral tariffs. In other words, the Canadian government is effectively using fiscal expenditures to lessen the impact of the trade war on certain industries and employment, but at the same time, the tariffs themselves are still raising production and consumption costs across the entire economic system. In addition to economic growth, Canada may also face new price pressures. The Oxford Economics Institute predicts that Canada's retaliatory tariffs will drive up consumer and producer prices by increasing the costs of imported goods and production materials. The study estimates that by 2027, counter-tariffs may lead to consumer price levels in Canada being 0.5 percentage points higher than baseline forecasts, with producer prices rising by 0.2 percentage points. However, the tariffs imposed by the U.S. on Canadian goods may, through their dampening effect on Canadian export demand and economic activity, produce a certain deflationary effect, thus partially offsetting the price increases caused by Canada's countermeasures.