---
title: Tariffs on Canada Lower US Manufacturing Output, New Oxford Economics Modelling Finds
description: Oxford Economics modelling for the Canadian American Business Council finds US manufacturing output falls under current tariffs and falls further if the USMCA breaks down.
author: Darie Nani (Editor-in-Chief)
updated: 2026-08-10T23:26:54.821Z
canonical: https://www.sovereignmagazine.com/article/usmca-tariff-modelling-us-manufacturing-output
image: https://cdn.nanimediahouse.com/usmca-tariff-modelling-steel-135901.webp
categories: Economy
content_type: News
region: Global
publication: Sovereign Magazine
schema_type: Article
---

New [modelling from Oxford Economics](https://cabc.co/wp-content/uploads/2026/08/CABC_Impact-US-Canada-Tariff-FULL-VERSIONpdf.pdf) finds that US manufacturing output ends up lower under the tariff path the United States and Canada are on now, and lower still if the USMCA collapses altogether. The work was commissioned by the Canadian American Business Council, a non-partisan business group that has long argued for the cross-border relationship, and it compares three outcomes after the 1 July deadline to extend the agreement passed without a renewal.

## The Status Quo Is Now the Path Both Economies Are On

Oxford Economics modeled three outcomes: a Status Quo in which the higher tariffs already in place on steel, aluminum, autos and certain non-compliant goods stay put; a Successful Renegotiation in which the USMCA is formally extended and most tariffs return to near their pre-2025 levels; and a Breakdown in which the agreement is terminated and tariffs spread across most goods. The firm calibrated its numbers to the tariffs in place in April 2026, and the report says those rates were broadly unchanged through July, when the deadline passed without action. That leaves the Status Quo as the world the two economies are actually in. The US effective tariff rate on Canadian goods sits at 6.5%, and would climb to 10.5% under a Breakdown or fall to around 1% under a renegotiation.

Total bilateral trade stood at $917.3 billion in 2024, and the report ties about 1.4 million American jobs and 2.5 million Canadian jobs to the relationship. Nearly two thirds of the goods crossing the border are intermediate inputs rather than finished products.

## Canadian Steel and Aluminum Are Inputs to American Factories

US manufacturing output comes out lower under both the Status Quo and a Breakdown, with metals, machinery, autos and other transport equipment hit hardest. Oxford Economics attributes that to how integrated the two economies already are. Canadian steel, aluminum, energy and other intermediate inputs are not substitutes for what American plants produce, they are embedded in it, so taxing them raises costs for the manufacturers the tariffs are meant to help. Where the model does show reshoring, in autos under the Status Quo and in electronics and electrical equipment under a Breakdown, it comes with higher prices for American consumers.

The report does not dispute the case behind the tariffs. It says trade liberalization raised aggregate incomes while leaving specific manufacturing communities behind, and it links persistent goods-trade deficits to a shrinking US industrial base. Its finding is narrower: tariffs on Canada are a poor instrument for fixing that. It also notes that the US runs one of its smallest bilateral goods deficits with Canada, driven largely by crude energy imports that help keep American energy costs low.

> "The choices made today will determine North America's economic competitiveness for decades to come. Businesses on both sides of the border are looking for predictability."
> — Beth Burke, Chief Executive Officer, Canadian American Business Council

## A Breakdown Would Cost About 214,000 US Jobs in 2027

Relative to the Status Quo, Oxford Economics projects that a Successful Renegotiation would support about 137,000 more US jobs in 2027, while a Breakdown would cost about 214,000. On the Canadian side the modelling finds about 98,000 more jobs under a renegotiation and about 102,000 fewer under a Breakdown. The report puts the difference between the two outcomes at roughly $516 a year for the average US household and C$846 for the average Canadian one.

## Indiana Takes the Biggest GDP Hit and Texas the Most Jobs

Under a Breakdown, Oxford Economics finds Indiana the worst affected state, with GDP more than 0.5% below the Status Quo in 2027 as autos, chemicals and steel absorb the hit together, and Texas facing the steepest job losses in level terms at nearly 25,000. States with large federal, tourism or extractive sectors, among them Washington DC, Wyoming and West Virginia, are the least exposed.

A renegotiation concentrates its Canadian gains in Ontario and Quebec, which between them take about three quarters of the net new jobs, roughly 56,000 and 20,000, most of it from the removal of US auto tariffs and lower steel and aluminum duties. The report says businesses on both sides are already rerouting supply chains, deferring investment and holding off on new hiring while the uncertainty lasts.

## FAQ

**Q: What is the USMCA and what happened on 1 July 2026?**
The USMCA is the trade agreement between the United States, Mexico and Canada. The deadline to extend it passed on 1 July 2026 without a renewal, which triggered a period of annual reviews and sustained uncertainty for businesses and investors on both sides of the US-Canada border.

**Q: What are the three scenarios the report models?**
A Status Quo in which current tariffs on steel, aluminum, autos and certain non-compliant goods stay in place, a Successful Renegotiation in which the USMCA is formally extended and most tariffs return to near their pre-2025 levels, and a Breakdown in which the agreement is terminated and tariffs escalate broadly.

**Q: What would a USMCA breakdown cost American jobs?**
Oxford Economics projects about 214,000 fewer US jobs in 2027 relative to the Status Quo, alongside a cumulative hit of about $1.0 trillion to US GDP over ten years.

**Q: Who paid for this modelling?**
The Canadian American Business Council commissioned it. The council was founded in 1987 and describes itself as a non-profit, non-partisan organization fostering dialogue between the public and private sectors in Canada and the United States.