Donald Trump is not the first U.S. President to impose substantial tariffs on imports. In 1930, President Herbert Hoover signed the Smoot-Hawley Tariff Act, which placed tariffs on more than 20,000 imported goods, including those from Canada and other long-standing U.S. allies. This triggered a trade war, with other countries imposing retaliatory tariffs on American exports.
What would later be called the “Great Depression” had already been underway since 1929. The tariffs served to only increase the severity and duration of that economic downturn. U.S. exports and imports fell by 67 per cent during the Great Depression, and that decline would have been less severe without the tariffs. Thankfully, the policy was short-lived, as tariffs were rolled back after Franklin D. Roosevelt won the presidency in 1933. Figure 1 is a look at how the average U.S. tariff rate changed from 1821 – 2016 (source: Wikipedia).
Figure 1: Wikipedia
In 1994, the North American Free Trade Agreement (NAFTA) took effect, accelerating supply chain integration between Canada, the U.S. and Mexico. A year before the agreement, trade between Canada and the U.S. totaled $211 billion USD. By 2024, that figure had grown to $762.1 billion USD (Investopedia). Likewise, trade between Canada and Mexico increased 10-fold between 1993 and 2018 (Investopedia).
In 2016, during his first presidential campaign, Donald Trump vowed to renegotiate NAFTA, calling it a “terrible deal.” This led to the 2018-2019 trade war, sparked by his administration just before Canada, the U.S. and Mexico returned to the negotiation table. The tariffs covered a wide range of goods— including solar panels, washing machines, steel and aluminum— and affected countries beyond North America.
The impact of the tariffs on washing machines, for example, had mixed results on the U.S. It reduced imports and increased domestic production, but the biggest beneficiaries were Samsung and LG— two South Korean companies that opened U.S. factories in response. At the same time, prices rose across the board— not just for tariffed washing machines but for all brands. U.S. manufacturers, who were exempt from tariffs, took advantage of the situation by raising their prices to boost profits, knowing their tariffed competitors had become more expensive.
Figure 2: Yahoo! Finance
As shown in Figure 2, washing machine prices rose faster than inflation. Additionally, because washers and dryers are typically sold together, dryer prices also increased. While there was a slight price correction on laundry equipment (washers and dryers) after the tariffs expired in February 2023, it only partially offset the earlier price hikes. Consumers who purchased laundry equipment between February 2018 and 2023 saw no benefit— they already paid the tariff premium and were unlikely to buy again soon.
Unsurprisingly, once tariffs were lifted, washing machine prices dropped and imports rebounded to pre-tariff levels (see Figure 3).
Figure 3: Yahoo! Finance
While washing machines are a final good— purchased by individual consumers or businesses like hotels and laundromats— raw materials such as steel and aluminum play a different role. They are inputs in the production of other goods, such as automobiles and buildings. For that reason, it's important to examine the impact of the 25 per cent tariff on Canadian steel and 10 per cent tariff on Canadian aluminum imposed during the 2018-2019 trade war.
Figure 4: Statistics Canada
Figure 4 shows steel and aluminum (the two goods combined into one series) trade between Manitoba and the U.S. In April 2018, companies stockpiled large amounts of these materials to avoid paying the impending tariffs. This is a unique example because, unlike steel and aluminum, other less durable goods cannot be stored as easily if they require a specific type of environment or have a fast expiration date. The tariffs remained in place until May 2019, and the chart shows that steel and aluminum trade did not fully recover until late 2020 and early 2021.
The lessons from the 2018-2019 trade war are informative and help us predict what the impact of across-the-board tariffs against Canada would look like. In the case of broader tariffs, there would be a profound “knock-on” effect, as goods would be tariffed each time they cross the border, leading to subsequent price increases across multiple goods and industries. Furthermore, the adjustment period and costs would be far greater. Building two washing machine factories is relatively straightforward, but reshoring an entire industry— such as North America’s auto sector— to the U.S. would be far more complex, time consuming and expensive.
At the time of writing this article, 25 per cent tariffs on imports not covered by the Canada-U.S.-Mexico Agreement (CUSMA) remain in effect (see Figure 5). The 25 per cent tariffs on steel and aluminum took effect on Wednesday, March 12.
Figure 5: RBC Economics
Meanwhile, newly appointed Prime Minister Mark Carney, has pledged to keep retaliatory tariffs in place until the tit-for-tat trade war ends. Considering how rapidly the trade war is developing, there is no use in speculating over the targets, duration or severity of future U.S. tariffs on Canadian imports. Instead, the focus should be on how exposed Winnipeg and Manitoba are to these tariffs.
In our last article, we talked about the diversity of Manitoba’s exports to the U.S. and how that will help buffer the province against tariffs. More recently, the Canadian Chamber of Commerce (CCC) released their index of Canadian cities by their exposure to U.S.- imposed tariffs, from the most to the least affected. This detailed assessment of tariff impacts at the municipal level provided some unexpected, yet reassuring insights—Winnipeg ranked near the bottom, placing 38 out of 41 cities.
Figure 6: City of Winnipeg, Economic Development and Policy office
According to the Statistics Canada data cited by the CCC, 34.5 per cent of Winnipeg’s total exports go to the U.S. Along with the share of exports, we should also factor in GDP exposure — the City of Winnipeg’s Economic Development and Policy Office reports that 6 per cent of the Winnipeg Economic Region’s GDP is directly exposed to the threatened 25 per cent tariff, while 0.5 per cent of the GDP is directly exposed to the 10 per cent tariffs on energy. In total, 6.5 per cent of Winnipeg’s GDP is directly affected by tariffs (see Figure 6).
As expected, manufacturing faces the greatest exposure, followed by transportation, warehousing, wholesale and retail trade, and finance, insurance and real estate. At first glance, these numbers might suggest Winnipeg would come out relatively unscathed from an intense trade war, but that would be an overly optimistic prediction for several reasons: the CCC index is a relative measure, meaning Winnipeg is less exposed than other cities but not immune. While GDP exposure appears small, potential job losses could number in the thousands, and reduced investment would have long-term consequences. Additionally, Winnipeg’s economy is closely tied to the rest of Manitoba, which exports over 70 per cent of its goods to the U.S. (Statistics Canada). The broader provincial impact would, in turn, affect Winnipeg more than the numbers initially suggest.
Figure 7: Canadian Chamber of Commerce Business Data Lab, Statistics Canada
For example, we can compare these two charts on Manitoba’s exposure to U.S. tariffs against the previous charts which presented data at the municipal level. Figure 7 plots trade as a percentage of GDP against the share of exports going to the U.S. Manitoba falls slightly below average on both measures.
Figure 8: Statistics Canada and Desjardins Economic Studies
Figure 8 takes a different approach, measuring job losses instead of export or GDP exposure. This paints a starker picture— Manitoba ranks among the more exposed provinces and could potentially lose 2 per cent of its total employment if across-the-board tariffs are implemented. Ultimately, Winnipeg’s interconnection with the broader Manitoba economy indirectly increases its exposure to the trade war and the impact thereof would be slightly below the national average at best.
A Case for Optimism
There is some silver lining to the trade war. First, the federal, provincial and territorial governments are taking steps to remove internal trade barriers. In particular, there is a strong commitment to establishing mutual recognition of labour qualifications and credentials, while still respecting language provisions. These changes might be implemented as early as June (in the next quarterly digest, we will explore the internal trade barriers in more detail).
Second, there is potential for tourism to have a strong year in Winnipeg and Manitoba. The weaker Canadian dollar makes travel to Canada more affordable for Americans while the opposite is true for Canadians visiting the U.S. On top of that, a growing movement to boycott U.S. travel could encourage Canadians to vacation domestically, whether for summer getaways or winter vacations. However, this trend could work both ways— if Americans misinterpret Canadian frustration with the Trump administration as anti-American sentiment, they may also avoid visiting Canada. It could also be argued that the U.S. has become a less attractive destination for other, international travelers as well; and those interested in visiting North America may choose Canada or Mexico over the U.S.
Finally, a new Canadian federal government will be elected following the April 28 federal election, allowing for more decisive action against any potential tariff threats. Ideally, this could include strategic investment to help Canada— and by extension, Winnipeg and Manitoba— reduce its dependence on the U.S. market for international trade.
