Canada would suffer the most economic damage under Trump's tariffs, new Yale report shows

• Trump's tariffs could shrink Canada's economy by 2.1% in real terms, says The Budget Lab of Yale.
• Canada faces a 35% tariff threat by August 1, on top of tariffs on potash, steel, and automobiles.
• The US ranks second in terms of economic damage due to tariffs, the Budget Lab report shows.

The US's second-largest trading partner may be bearing the brunt of President Donald Trump's tariffs.

A new report by The Budget Lab at Yale University shows that the Trump administration's tariffs would shrink Canada's long-run economy by 2.1% after taking inflation into account, more than the impacts on other countries in the world.

This figure is up from the previous estimate of a 1.9% long-term damage to Canada, and doesn't take into account Trump's threats to impose a 35% tariff on Canada from August 1.

On Truth Social, Trump published a letter to Canada on Thursday, accusing the northern neighbour of having "financially retaliated against the United States."

Though Canada is not subjected to the 10% base tariffs, the northern neighbour already faces a 10% tariff on potash and energy, a 50% tariff on steel and aluminum, and a 25% tariff on automobiles. Canada also exports around three-quarters of its goods to the US.

The US-Canada relationship has also suffered due to the tariffs and Trump's repeated comments that Canada should become the 51st state of America. Many Canadian retailers and consumers are turning to locally sources goods over US imports.

In response to Trump, Canadian Prime Minister Mark Carney wrote on X that he remains willing to collaborate with Washington, DC, and said he is "building Canada strong."

"The federal government, provinces, and territories are making significant progress in building one Canadian economy," wrote Carney. "We are poised to build a series of major new projects in the national interest. We are strengthening our trading partnerships throughout the world."

After Canada, the Bugest Lab report shows that the US ranks second in terms of estimated GDP loss due to Trump's tariffs. While China's economy is expected to contract by 0.2%, the US economy is expected to be 0.4% smaller in the long run and 0.8% smaller in 2025 alone.

US households, the report says, will also see an income loss of $2,500 due to tariffs. Clothes and footwear would become disproportionately more expensive by as much as 39% in the short run, and prices are expected to stay up in the future.