“The U.S. Administration announced this week that Canada’s exemption from tariffs on steel and aluminum will indeed expire July 1st, imposing duties of 25% and 10%, respectively, on shipments of these products. We believe the direct economic impact in Canada will likely be moderate at around 0.1% of GDP, in part because much of the move will be absorbed through the price channel, especially for aluminum. Even so, this is clearly a negative development with respect to future trade talks and potential disruptions in other sectors, such as autos.” (Douglas Porter and Robert Kavcic, BMO Capital Markets (Focus), June 1, 2018)

As the two bank economists note, trade in iron and steel products between Canada and the U.S. is roughly in balance, which suggests that the imposition of new trade barriers will hurt both countries, not only Canada.

The story is somewhat different when it comes to aluminum since Canada (and Quebec in particular) is a major supplier of this commodity to the U.S.

Canadian sales of aluminum products to the U.S. was about $11 billion over the latest 12 months, compared with $3.6 billion of imports. In this case, there is little doubt that Canada’s comparative advantage in this sector is related to low electricity prices in Quebec.

As for the regional impact of the new American tariffs, the impact on aluminum will fall heavily in Quebec, while the impact on steel exports will be felt most heavily in Ontario.

Of course, the American move to implement tariffs under the guise of national security concerns has triggered an angry response across the globe, including a strong reproach from Canada.

In response to the U.S. punitive tariffs, the Canadian government announced $12.8 billion in retaliatory tariffs, which represents "the strongest trade action Canada has taken in the post-war era."

The Canadian government has drawn up two lists of products that would be subject to either 25% or 10% taxation until the U.S. changes its position. So far Canada’s retaliatory tariffs deliberately target Republican-leaning states.