Saturday's new US tariffs worth C$28 billion cover around 5% of Canadian goods exports to the US and raise the weighted average effective tariff on Canadian imports to 7.5 percentage points from about five points, hitting the country's economic growth, according to BMO Capital Markets in a Monday note.
While the overall impact may be manageable, some Canadian industries will face significant pressure and a breakdown in US-Mexico-Canada Agreement protections and further deterioration in trade relations could weigh heavily on business confidence and investment, said the bank.
"Our initial estimate is for these tariffs to carve roughly half a percentage point from Canadian growth, mostly through weaker business confidence and investment," wrote BMO Senior Economists Robert Kavcic and Jennifer Lee.
The impact will depend on the scale of Canada's retaliation and the extent of any government fiscal support, they added.
As of Saturday, Canada is subject to US 50% tariffs on specific goods worth C$28 billion, including dairy products, cement and hockey equipment, in addition to existing ones on lumber and aluminum, after talks between the two countries collapsed late Friday.
The impact is likely to be greatest in British Columbia, Quebec and Ontario, which are already under the most pressure from existing duties on steel, aluminum and lumber, according to BMO.