The Cost of Standing Up to Protectionism: Price and Welfare Impacts of Canada's 2018 Retaliatory Tariffs

Tazia Khushboo

Canadian Public Policy, 2025, vol. 51, issue 3, 319-343

Abstract: When the United States imposed tariffs on Canadian steel and aluminum in 2018, Canada responded with retaliatory tariffs on US goods worth $16.6 billion. I analyze how much of these tariffs passed through to import prices. The extent to which import prices increase because of tariffs is the tariff pass-through rate. A lower pass-through indicates that foreign exporters—rather than domestic importers—paid for most of the tariffs, implying better welfare consequences for the tariff-imposing country. Using Canadian import data and retaliation information, I exploit a triple-difference strategy to estimate the pass-through of Canada's retaliatory tariffs. On average, import prices increased to reflect the full tariffs, leading to zero terms-of-trade gains and welfare losses of $464 million. Thus, each dollar of the $1.76 billion tariff revenues raised imposed an average cost of $1.26 on Canadian importers. However, product-level analysis reveals that pass-through was incomplete for a subset of the targeted US products.

Keywords: Canada-US trade relations; tariff pass-through; terms-of-trade gains; retaliatory tariffs; 2018 tariff war (search for similar items in EconPapers)
JEL-codes: F13 F14 (search for similar items in EconPapers)
Date: 2025
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