OTTAWA-President Trump's proposed 50% tariff on an array of Canadian-made goods could exert pain on certain sectors but is unlikely to trigger major damage to Canada's economy, according to initial estimates from economists.

Forecasting firms that reviewed Trump's latest policy proclamations, released Monday, suggest the 50% levy affects about 5% of total Canadian exports to America, representing a value of around $20 billion.

Chemicals, plastics, electronics and industrial equipment are among the goods most affected by Trump's planned new tariff, which the administration said is in response to Canada's "discriminatory treatment of American products" such as automobiles, cheese and alcohol.

"We see this as a sector-specific development rather than a broad macroeconomic story, though it is clearly significant for the industries directly affected," said Benjamin Tal, deputy chief economist at CIBC Capital Markets.

Foreign-exchange traders appear to hold a similar view, with the Canadian dollar holding steady in early Tuesday trading. "Perhaps the market knows how this game is played now," said Robert Kavcic, economist at BMO Capital Market.

The White House said the 50% tariff would take effect in 30 days, which does give officials from Washington and Ottawa some time to reach a resolution.

Canadian Prime Minister Mark Carney said federal negotiators have made a series of proposals over several months designed to settle existing trade tension with Washington, and those officials "stand ready to intensify those discussions in the coming weeks."

The new hefty tariff exempts some key Canadian exports to the U.S., such as energy, potash and critical minerals.

The 50% tariff represents the latest escalation in trade tensions between the U.S. and Canada, which last year conducted two-way trade of over $700 billion.

Since Trump returned to office, the level of Canada's gross domestic product has remained unchanged, reflecting struggles to adapt to hefty U.S. tariffs of up to 50% on key industrial sectors, most notably steel, aluminum, automobiles and forest products. Trump's trade policy has also fueled heightened business uncertainty, leading firms to scale back plans to invest and hire.

The Bank of Canada expects meager growth of 0.7% in 2026 before rebounding in the following two years.

The bulk of Canada's exports to the U.S. have been exempt from U.S. tariffs because they comply with the terms of the U.S.-Mexico-Canada trade treaty, or USMCA. The latest proposed tariff would remove that protection.

Bank of Canada Governor Tiff Macklem warned in the spring that the central bank might need to consider interest-rate cuts if significant new tariffs were placed on Canadian goods. Just last week, the Bank of Canada kept its policy interest rate unchanged in a sixth straight decision, with Macklem expressing optimism that the economy had turned a corner and businesses were adjusting to the U.S. trade-policy backdrop.

Earlier this month, the U.S. opted against renewing USMCA for another 16 years, thereby subjecting the pact to annual reviews for at least a decade. Without an agreement among the three countries before 2036, the continental trade deal would be terminated.

The new tariff may only affect a small share of Canadian exports, but what's important is "the message this sends - leverage during the USMCA negotiations, which promise to be tough and cast a renewed cloud over the local economy," said David Rosenberg, head of market-strategy firm Rosenberg Research.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

July 21, 2026 08:07 ET (12:07 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.