Is Canada’s trade nightmare just beginning? Don’t underestimate its vulnerability

One of the main reasons I rarely comment publicly on the loonie—despite trading it actively, especially on the crosses—is that as a former Bay Street trader, I’m hardwired to be bearish CAD. That mindset’s been ingrained in me since executing my first broker trade through Tullett Prebon, and let’s just say old habits die hard.

That said, it’s worth taking a fresh look at Canada’s macro landscape—because alongside the EU, I still believe Canada is firmly in the tariff firing line.

For starters, PM Mark Carney’s recent charm offensive through Paris and London might’ve done more harm than good. He may have been trying to position Canada as a bridge to Europe, but in the current geopolitical climate, all he really did was paint a bigger target on his back. With Canada’s economy so tightly tethered to U.S. demand, it doesn’t take much to spook the loonie—and while it’s not in full panic mode just yet, the cracks are starting to show.

Then there’s the EU. Outside of Meloni—who at least seems to understand which side her bread is buttered on—most European leaders seem to view Trump and J.D. Vance with outright venom.

Italy’s Giorgia Meloni rejects ‘childish’ choice between Trump and Europe.

This Brussels vs. Washington dust-up shouldn’t have spiralled like this. And honestly, much like the Ukraine War, it should never have happened in the first place.

Canada is vulnerable

Don’t sleep on Canada’s vulnerability in this trade cycle. The loonie isn’t collapsing, but it's trading like a currency without a clear political shield, and that makes it highly reactive to any fresh salvo from D.C. We’re not far from the moment where positioning flips from "complacency" to "get-me-out risk management."

Markets knew something big was brewing with Trump’s “Reciprocal Tariffs” landing on April 2, but few expected him to go full metal jacket this early. In a surprise March 26 executive order, the White House slapped a 25% tariff on all imported cars, light trucks, and select parts, using the old Section 232 warhorse. And just like that, the global auto playbook has been set ablaze.

Canada and Mexico? They’ve got a conditional hall pass. Vehicles assembled under USMCA rules will only get dinged on the non-U.S. content. But that’s a narrow escape—estimates suggest only 50% of Canada’s exports clear the bar, leaving the rest exposed. Meanwhile, auto parts dodge the heat for now, but let’s be honest—everything’s on the table.

The U.S. might make cars, but it imported over 8 million vehicles worth $243 billion last year—and now the sector is facing a cost shock of epic proportions. Inventories might look “healthy” at three months of supply, but don’t be fooled. As those lots empty, new prices could jump $3K–$6K per vehicle in short order. And with auto spend nearly 4% of PCE, we’re not just talking showroom sticker shock—we’re talking a real hit to consumption and Q2 GDP.

Canada’s nightmare is just beginning. Its entire automotive industrial complex is geared toward serving the U.S. market. You can’t just flip a switch and pivot that capacity inward. And while Canadian consumers will also take a hit—especially on U.S.-built vehicles—it’s Ontario that’s staring down the barrel. Ottawa will need to move fast with fiscal support, and the provincial budget delay just became even more problematic.

Oh, and about that USMCA side letter “exemption” Canada inked in the fine print? It covers 2.6 million vehicles and $32 billion in parts annually, but whether Trump honors it is a roll of the dice. This is less about trade math and more about leverage—classic Trump.

And this is just Act I. April 2 will unleash the “Liberation Day” package: reciprocal tariffs across industries, plus rumored hits to semiconductors, pharma, and more. This thing has legs—and we haven’t even talked about retaliation from Europe, China, or Mexico.

The U.S. consumer might feel it first at the dealership, but production cuts, job losses, and investment pullbacks won’t be far behind. From Detroit to Ontario to Bavaria, the global auto sector is about to get re-rated.

Bottom line

This isn’t posturing. It’s policy. If these tariffs stick, "business as usual" is dead. The markets haven’t fully priced in the disruption to supply chains, input costs, or sentiment. The second-order effects—slower capex, tighter margins, and consumer pullback—are coming. April 2 might not just be Liberation Day—it could be Correction Day for anyone still betting on a moderate tariff landing narrative for Canada.