The latest episode of the Business Data Lab’s podcast, Canada’s Economy, Explained, shines a light on a major risk facing Canadian businesses. Host Marwa Abdou sits down with Dr. Chad P. Bown, former Chief Economist at the U.S. Department of State and Senior Fellow at the Peterson Institute for International Economics, to break down the new wave of U.S. tariffs and what they mean for Canada’s economy.

If you think tariffs are just political noise, think again. Bown explains that these proposed tariffs could deal a major blow to industries that rely on cross-border supply chains. “The potential impact of some of these tariffs could be incredibly disruptive,” he says. In industries like automotive manufacturing, parts cross the U.S.-Canada border multiple times. A 25% tariff applied at each crossing would be devastating.

Key Takeaways:

• Tariffs could double or triple supply chain costs
• Small suppliers are most at risk of collapse
• Retaliation could cause more harm than good

Bown draws a direct comparison to the early pandemic days when a shortage of one part—semiconductors—shut down entire automotive plants. Tariffs could cause similar, but broader, disruptions.

For policymakers, it is a lose-lose situation. Bown reminds listeners that while retaliation may seem justified, “tariffs also cause self-harm.”

“If the United States is serious about doing this, and they’re not providing an off ramp, then countries will have to evaluate for themselves whether retaliation is actually worth it.”

Canada’s Struggle to Diversify Trade

Many experts say Canada must diversify its trade partners. But Bown is clear: it’s not that simple.

“It is really, really hard for Canada to be able to diversify for a number of fundamental economic underlying reasons.”

Geography plays a huge role. The U.S. is a massive, nearby market, making it naturally easier and cheaper for Canadian businesses to trade south rather than across oceans. Building new trade infrastructure would take years and significant investment.

Technology Changed the Rules

Bown also reminds us that even if manufacturing moves back to North America, the jobs might not follow.

“Even if you erect trade barriers, companies are going to figure out how to make them with as low a cost as possible. And oftentimes that’s not going to be with workers. It’s going to be with technology.”

• Tariffs don’t just hurt businesses. They raise costs for every consumer. The BDL’s Canada-US Trade Tracker estimates that new tariffs could cost the average American family $1,300 USD per year and the average Canadian family $1900.
• Canada must prepare for long-term trade shifts because short-term fixes will not protect the economy from disruption.

Advice for Policymakers and Businesses

Bown’s advice for Canada is clear.
First, understand that not everything coming from Washington is part of a grand strategy. Even insiders are struggling to make sense of the mixed trade signals.

“It’s not as if Washington is at a moment where there’s a well-understood master plan in place. If Canadians are wondering what’s going on, you’re not alone.”

Second, avoid rash retaliation. It could cause greater damage at home without improving the situation abroad.

Finally, focus on long-term solutions. Building stronger trade ties beyond the U.S. will take time, investment, and consistent leadership.

Bown closes with hope, reminding us that democracies can correct their course over time. Cooperation still offers the best path forward.