Former U.S. President Donald Trump participated in the national prayer service held at the Washington National Cathedral on Tuesday, January 21, 2025, in Washington, D.C. The event was captured by Associated Press photographer Evan Vucci.
U.S. President Donald Trump’s recent announcement of a potential 25% trade tariff on Canadian imports, set to take effect on February 1, has stirred significant discussion. Experts suggest this move may be more of a bold negotiation tactic than a long-term plan. Sadiq Adatia, Chief Investment Officer at the Bank of Montreal, predicts such a high tariff is unlikely to endure, or even materialize.
“When negotiations start, an exaggerated initial offer often sets the stage,” Adatia explained in an interview with Yahoo Finance Canada. “I don’t think 25% will stick.”
Trump’s comments follow his claims that Canada is a “bad abuser,” citing issues such as fentanyl and migration at the northern U.S. border. He indicated that the tariff is designed to push Canada and Mexico to the bargaining table while sending a strong message to other trading partners worldwide.
In his inaugural address earlier this week, Trump promised a “Golden Age of America,” emphasizing his focus on leveraging tariffs and duties to boost domestic revenue. He argued that the U.S. heavily subsidizes Canada, allegedly for $200 billion annually. “Instead of taxing our citizens to enrich other countries, we will tariff foreign nations to benefit Americans,” he stated.
Prime Minister Justin Trudeau responded firmly, asserting that Canada is prepared to address all potential outcomes if the tariffs are enforced.
Economic and Market Reactions
In Toronto, the S&P/TSX Composite Index showed little movement on Tuesday, reflecting cautious optimism among Canadian businesses. According to Adatia, a weaker Canadian dollar is helping some companies mitigate the risks posed by U.S. trade measures. However, he recommended focusing investments on U.S. stocks in 2025, citing potential challenges for emerging markets from tariffs and economic struggles.
Meanwhile, economists are raising alarms over the potential fallout of the proposed tariff. CIBC estimated that sweeping tariffs could slash up to 3.25% from Canada’s economy, even if oil and gas are exempt. Scotiabank’s Chief Economist Derek Holt warned that a broad application of tariffs without exceptions could devastate Canada. “If the U.S. imposes these tariffs and Canada retaliates, the economic consequences could be ruinous,” Holt stated.
The looming tariffs also cast uncertainty over the Bank of Canada’s next move. The central bank is set to announce its rate decision on January 29. Adatia noted that a 50-basis-point cut in the last meeting signalled confidence despite tariff threats, but he expects a 25-basis-point cut this time.
While tensions escalate, it remains to be seen whether Trump’s tariff proposal will serve as a temporary negotiating ploy or escalate into a prolonged trade conflict.
