by Policy Options. Originally published on Policy Options
January 20, 2025
The Canadian Infrastructure Council (CIC), unveiled in December, has been asked to assess the country’s infrastructure needs, identify investment priorities and provide evidence-based guidance for building Canada.
But even before it starts rolling up its sleeves, the CIC faces a monumental hurdle.
U.S. President Donald Trump’s tariff threats pose a direct challenge to infrastructure development across Canada, threatening to drive up costs and disrupt projects. For the CIC, it’s a trial by fire.
The tariff threats, added to rapidly rising domestic and international costs for materials critical to infrastructure development, could derail Canada’s ambitious agenda.
Therefore, it’s important for the CIC to act quickly to help Canada develop an effective response.
A key first step is conducting a supply chain vulnerability audit to identify where Canada’s infrastructure sector could be hurt most.
The CIC must also prioritize interventions that foster cross-border collaboration while reducing reliance on U.S. imports.
Trump doubling down
Trump continues to threaten to impose tariffs of 25 per cent on imports from Canada and Mexico immediately after his inauguration.
However, others anticipate a slower timetable.
Bloomberg Economics recently interviewed Washington insiders to map out a plausible scenario with three waves of tariff hikes from the summer of 2025 through to the end of 2026. Their model concludes an increase of 8 to 10 per cent in U.S. tariffs is likely, not the 25-per-cent negotiating tactic currently in play.
A recent Canadian Chamber of Commerce analysis of a 10 per cent across-the-board U.S. tariff found significant economic consequences for both Canada and the U.S. The analysis, based on the OECD inter-country input-output (ICIO) table, suggested declines in trade volumes, real income and productivity in both countries, with Canada’s real income dropping by 0.9 per cent and the U.S.’s by 0.6 per cent.
Retaliatory tariffs would amplify these impacts, further reducing productivity and real income on both sides of the border. Vulnerable sectors include automotive, basic metals, chemicals and energy. History tells us that whatever hikes are imposed usually focus on intermediate and capital goods that slowly or indirectly affect consumer prices.
In the lead-up to the 2026 USMCA renegotiations, Trump’s policy options include various provisions under the U.S. Trade Act.
If his actions mirror what he did in his first term, its national security provisions – used previously to target Canadian steel and aluminum – are likely to re-emerge and potentially be extended to automotive parts or energy products.
In addition, provisions addressing alleged unfair trade practices could focus on subsidies or policies affecting key sectors such as forestry or dairy.
Emergency powers might be invoked to impose swift tariffs tied to crises, such as fentanyl smuggling.
The stakes are high
BuildForce Canada anticipates investment in the construction of public infrastructure to surpass $160 billion over the next four years.
Major public infrastructure projects have already been launched in every province, driving a 12-per-cent increase in investment since 2022.
While a temporary stabilization is expected as current projects wind down, infrastructure investment is forecast to spike between 2026 and 2028, driven by a global market recovery and sustained demand for health care, transportation and energy.
Yet, these projects face growing challenges from rising material costs, as reflected in an analysis of Statistics Canada’s industrial product price indices (IPPI) and raw materials price indices (RMPI).
For example, steel and aluminum – critical for infrastructure development – have experienced average annual price increases of 3.4 per cent, with sharp spikes during trade disputes such as the 2018 U.S. tariffs.
Prefabricated metal components – essential for transportation and non-residential projects – saw even steeper year-over-year increases, rising as much as 17.3 per cent in January 2019.
Similarly, petroleum-based materials such as asphalt have exhibited volatility, with prices surging 24.8 per cent in 2019.
Ready-mix concrete has shown relatively stable price growth of 1.4 per cent annually due to reliance on domestic production.
However, imported cement – a vital component – remains susceptible to global trade disruptions. That is compounding project delays and cost uncertainties.
Diesel fuel, which is essential for machinery and logistics, has also faced sharp price swings.
What can Canada do?
In 2018, when Canada imposed retaliatory measures on U.S. goods valued at $16.6 billion, it led to significant cost escalations for key inputs such as rebar and fabricated steel.
Similarly, companies in the U.S. used previous tariff impositions to justify price increases beyond direct cost impacts, as evidenced by firms such as e.l.f. Beauty and Skechers. Such strategies highlight how firms capitalize on trade tensions through opportunistic pricing.
Another tool leveraged by firms involves the invocation of force majeure clauses – a legal mechanism that allows parties in a contract to suspend or modify their obligations due to unforeseeable events – a factor that added delays to major projects or made them more expensive during COVID and the war in Ukraine.
To counter these external pressures and protect Canada, the CIC could take the following actions:
- Leverage insights from the U.K.’s national infrastructure commission guidance during Brexit by recommending diversification of material sourcing through strengthened trade partnerships in Europe and Asia.
- Identify interprovincial trade barriers in the construction sector that could be addressed to boost sector productivity.
- Incentivize domestic production of critical materials such as rebar and structural steel to enhance resilience.
- Present a cost-benefit analysis recommending targeted measures, including temporary subsidies or tax incentives, to offset material cost increases.
- Streamline permitting processes to enhance local manufacturing and bulk procurement agreements to stabilize prices.
A supply chain vulnerability audit – conducted with input from industry stakeholders and binational chambers of commerce – would likely illustrate differences between provinces such as Ontario and B.C., which are more trade-dependent, and Alberta and Quebec, which are better-positioned.
Such an audit would also provide the critical evidence base for prioritizing immediate interventions and fostering cross-border collaboration.
One size does not fit all
Regional disparities in material sourcing and cost impacts underscore the urgency of a co-ordinated response.
The CIC should consult experts in regional infrastructure and U.S.-Canada trade, as well as members of Canada’s previous NAFTA renegotiation team, to gather primary research on best practices and region-specific challenges.
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By leveraging these insights, the CIC can provide evidence-based recommendations that address regional vulnerabilities and strengthen the resilience of Canada’s infrastructure ecosystem.
Canada has been in this position more than once and can learn from history.
Nearly a century ago during the Great Depression, Liberal Prime Minister Mackenzie King faced the political and economic fallout of the U.S. Smoot-Hawley Tariff Act. He opted for retaliatory measures that ultimately failed to garner public support.
His cautious approach gave way to R.B. Bennett’s Conservatives, who rode promises of a tougher response to electoral victory.
However, the resulting economic deadweight losses were borne by Canadians and Americans alike, highlighting the perils of reactive trade policies.
Today, the parallels are stark.
With a federal election looming, Canada must balance firm trade advocacy with long-term economic stability.
Missteps – whether from overreaction or inaction – risk eroding public trust and leaving the nation ill-prepared for the challenges ahead.
By presenting clear, evidence-based recommendations, the CIC can help avoid the missteps of the past.
It can then chart a path that secures Canada’s infrastructure resilience while reinforcing the broader economic and political partnerships that underpin national prosperity.
This article first appeared on Policy Options and is republished here under a Creative Commons license.