Assessing tariff pass-through to consumer prices in Canada: Lessons from 2018, staff analytical note 2025-18

… <p>To help fill this knowledge gap, we examine a previous tariff episode and use detailed consumer price microdata. In May 2018, the United States imposed tariffs on Canadian steel and aluminum. In response, in July 2018, Canada imposed counter-tariffs on US steel, aluminum and some final goods.<a href='#footnote-2' id='footnote-ref-2' title='See “Updated – Countermeasures in Response to Unjustified Tariffs on Canadian Steel and Aluminum Products” on the Department of Finance Canada’s website for a full list of the counter-tariffs in 2018.' aria-labelledby='footnote-label-1' class='footnote-ref'>2</a> The list of tariffed items was wide-ranging—from grocery products and household items to major appliances—but comprised less than 1% of the overall CPI basket. The tariff rate on steel was 25% and the rate on aluminum and final goods was 10%. This trade dispute lasted just less than a year. In May 2019, the United States lifted its tariffs, and Canada lifted its counter-tariffs in turn.</p> <p>Using the synthetic control method (SCM), we find that Canada’s 2018 counter-tariffs resulted in, on average, high but incomplete pass-through of tariffs to consumer goods prices. That said, the magnitude and speed of the price increases varied considerably across tariffed consumer goods.  </p> <p>Insights from this analysis helped inform the Bank of Canada’s projection scenarios in the April 2025 <em>Monetary Policy Report.</em> These scenarios assume that 75% of the increased costs from tariffs is passed on to consumer prices within six quarters. While many factors are different now compared with 2018—including the scope and magnitude of tariffs—our methodology nonetheless provides a useful anchor for evaluating the impact of tariffs on consumer prices. Going forward, this methodology will be leveraged to monitor the impact of new tariffs on consumer prices in real time.<a href='#footnote-3' id='footnote-ref-3' title='For examples of other work assessing the impact of current US tariffs on consumer prices, see Cavallo, Llamas and Vazquez&nbsp;(2025).' aria-labelledby='footnote-label-1' class='footnote-ref'>3</a></p> …