‘Devastating’: Canadian experts react to Donald Trump’s threat of 25 percent tariffs

Donald Trump’s declaration that, as one of his first acts upon taking office on January 20th, he will impose a sweeping 25 percent tariff on all Canadian and Mexican goods entering the United States has sent politicians, policymakers, and business leaders across the continent into a tizzy.

How seriously should we take this threat? And what can we do to prevent North American free trade from becoming a relic of the past? The Hub has gathered some of our top experts and insiders to react to Trump’s tariff plans and break down the best ways for Canada to respond.

The economic costs of Trump’s tariffs would be very high—for the U.S. too

By Trevor Tombe, a professor of economics at the University of Calgary and a contributing writer to The Hub

Trump’s announcement of a 25 percent tariff on “ALL products coming into the United States” from Canada and Mexico (on day one!) has alarmed many. For good reason. In Ontario, for example, two-way trade makes up 41 percent of the province’s economy, and in Alberta, a major energy supplier to the U.S., it is 42 percent. (I plot the 2023 data below.) A 25 percent tariff would be highly disruptive, potentially affecting millions of jobs.

Canada-U.S. trade as a share of each jurisdiction’s economy, 2023

For the U.S., the relative importance of these trade flows may seem smaller, but in key states—especially those in the battleground Midwestern states—Canada is a critical trading partner. And for 34 states, Canada is their largest export destination.

The economic ties between Canada and the United States go far beyond basic trade flows, involving deeply intertwined supply chains. So a 25 percent tariff would harm American industries too. In collaboration with the Canadian Chamber of Commerce’s Business Data Lab, we explored the importance of Canada-U.S. trade and estimated that if the U.S. follows through on this threat and Canada retaliates, both economies would take a significant hit. Updating those numbers, the economic cost for Canadians would be around $1,900 CAD per person annually. In the U.S., the impact would be nearly as large, about $1,700 CAD per person.

And even these estimates are conservative! They don’t capture additional short-term costs from increased uncertainty, which could lead to delays or cuts in business investment plans.

But Canadians shouldn’t panic. The high economic costs for the U.S. mean they (hopefully) wouldn’t move ahead too recklessly. Perhaps threatening the tariff without levying it. Or exempting certain sectors (like oil and gas), which would dampen the negative hit. And this may all be a negotiating tactic by the U.S. If so, Canada needs to be prepared to engage in those discussions and address U.S. concerns.

Is this the wake-up call Canada needs?

By Howard Anglin, a contributing writer to The Hub

Trump’s threat to impose crippling tariffs on Canadian goods unless we tighten our border security is an overdue wake-up call for Canadian politicians. It is also an opportunity. Although the U.S. reports that it has identified between 14,000 and 19,000 inadmissible people per month trying to enter the U.S. from Canada this year, we have our own concerns about significant numbers of people coming here illegally from the U.S. This presents a win-win opportunity. Finally, after more than a decade of trying to get the U.S. to take its northern border seriously, the issue is on their radar (though, unfortunately, for the wrong reasons).

America’s newfound interest in her northern border gives the Canadian government an opportunity to press our own concerns with the leaky American border, which is particularly vulnerable if Trump follows through on his promise of mass deportations of illegals. One solution that Canada should offer, which I proposed in a co-authored piece back in 2017, is joint U.S.-Canadian border patrols to direct would-be border jumpers to ports of entry where the Safe Third Country Agreement applies. We managed to work with the U.S. to close illegal border crossings during the COVID-19 pandemic. Surely we can do so again with a willing partner.

So much for our special relationship

By Derek H. Burney, a former Canadian ambassador to the United States of America

President-elect Trump’s threat of a 25 percent tariff on all Canadian imports is insulting and unwarranted. His crude “might is right” ploy would blatantly contravene the United States-Mexico-Canada Agreement (USMCA). He favours coercion over cooperation, even with key allies.

The problems at the borders are lopsided. Illegal migrants entering from Mexico are in the millions while those from Canada are in the thousands. The fentanyl shipments and sex trafficking, organized by drug cartels, are almost exclusively from Mexico.

Nonetheless, Canada should readily tighten border controls, both to curtail those seeking to illegally enter the U.S. and to stop dangerous felons wanting to escape into Canada to avoid deportment.

Sadly, Trump’s announcement reflects the degree to which Canada has fallen in terms of the mutual respect and relevance that has long characterized a special, even privileged relationship.

If the threat becomes real following Trump’s inauguration, Canada should retaliate with equivalent measures. But since the damage would be severe for both countries, pragmatic sanity should prevail over reckless bluster. Urgent, face-to-face diplomacy is needed stressing the mutually beneficial advantages of our trade relationship, e.g. that our automakers are fully integrated, and that Canada provides 60 percent of America’s crude oil imports and 27 percent of its uranium supply.

Stop panicking

By Roland Paris, director, Graduate School of Public and International Affairs, University of Ottawa

Trump’s tariff threat shouldn’t have come as a surprise. This is how he starts negotiations: by threatening dire consequences to throw the other side off balance.

Unfortunately, he succeeded. Some Canadian political leaders have responded by siding with Trump, by blaming Ottawa, or by talking tough–when what we really need is calm resolve to defend Canada’s interests and a shared commitment to mount the biggest advocacy and outreach campaign in the United States that this country has ever undertaken.

Justin Trudeau’s unpopularity makes him an easy political target for his rivals, but he is still the prime minister. And if Canadian political leaders fail to work together at this moment of national urgency, they will be doing our country a lasting disservice.

Canada must teach Trump that two can play this game

By Laura Dawson, executive director of the Future Borders Coalition, and Charles Shapiro, a retired U.S. ambassador and senior State Department official

What should Canada be doing to counter tariff threats? Trump is president-elect, not president. The next 60 days until the inauguration provide what parents call “a teachable moment” to educate the incoming administration that Canada is the largest export market for U.S. products, that 35 million Canadians buy more from the U.S. than do 1.1 billion Chinese, and that Canada is the top export market for 34 U.S. states. The U.S. and Canadian economies are inextricably intertwined. U.S. homes are built with lumber from Canadian forests. New England is heated with natural gas from Canada. Canada exports electricity to the U.S. and the U.S. exports electricity to Canada.

Trump loyalists are calling Trump’s threatened tariffs his “negotiating strategy.” Two can play that game. Canadian messaging, behind the scenes where possible, in public if necessary, should explain that Trump’s unilateral imposition of a tariff, will revert to the law of the playground: you push me and I’ll push you back.

Canada’s use of retaliatory tariffs must be targeted to iconic American products that will draw U.S. attention to the domestic cost of the new president’s trade shenanigans: California wine, Georgia peaches, Harley-Davidson motorcycles from Wisconsin, and bourbon from Kentucky. The goal is not to hurt U.S. businesses but to provide a practical lesson to the new administration that tariffs against Canada will seriously damage the economies of both countries.

The chaos is the point

By Theo Argitis, managing director at Compass Rose Group and publisher of the Means & Ways newsletter

Donald Trump is trying to score concessions from trading partners by creating uncertainty and chaos. His objective is to keep Canadians focused on worst-case scenarios, no matter how improbable. The greater our concern about the truly terrible outcomes—like his out-of-the-blue blanket 25 percent tariff threat—the more likely we are to seek insurance against really bad outcomes by making deals.

And it seems to be working. Politicians are already musing about potentially abandoning Mexico and negotiating a separate stand-alone trade agreement with the U.S. This is a mistake and will lead to wrong decisions.

At a minimum, we need to apply realistic probabilities to the worst cases and be open to the public about it. It will not only give us confidence about our own negotiating position but mitigate any public pressure to sacrifice an industry or two in exchange for nothing but peace of mind.

Eliminating low-probability worst cases is not a win for Canada if it means forfeiting ground on other less-worse-but-still-bad outcomes. Massive blanket tariffs are very low probability, no matter the rhetoric. This is just a very intuitive read of the situation.

In the first nine months of this year, Americans imported $155 billion of food, energy, minerals, and metal ores from Canada. This is the stuff countries scour the earth for and go to war over. Assuming he’s a rational actor, Trump is not going to tax the secure supply of critical raw materials from a close ally. Let’s internalize that as we brace for what’s to come.

Canada and America are stronger together than we are apart

By Beth Burke, CEO of the Canadian American Business Council

The announcement by President-elect Trump on Monday is one that our organization vehemently opposes and is one that would undermine the principle of the USMCA while significantly harming businesses on both sides of the border and eroding the economic and geopolitical strength of North America. If previous imposition of tariffs taught us anything, it is that retaliation is inevitable, and the applied countermeasures can target sensitive industries, exacerbating the economic impact and creating uncertainty for our businesses.

North American security is a priority for both of our countries, as evidenced by the joint command at NORAD, and the Smart Border Accord. Focusing on continued collaboration and coordination through our agreed-upon frameworks and institutions will ensure our joint security, while tariffs risk deteriorating our economic strength.

We hope that the new administration prioritizes this collaboration and upholds the core principles of the USMCA to ensure North America remains a global leader in trade and innovation.

North America should remain united against foreign threats

By Catherine Cobden, president and CEO of the Canadian Steel Producers Association

The statement by the president-elect is ultimately a signal of the need for urgent action and dialogue between Canada and the United States on a range of important issues. We don’t believe this is a reflection of the Canada-U.S. trading relationship; one that is founded on the principles of the USMCA and signed into force by both the current Canadian prime minister and the president-elect.

Imposing tariffs on Canadian steel will have a tremendous impact across many integrated sectors such as auto, energy, and construction, making everything more expensive for American and Canadian consumers.

Canada has made strides to align our trade policies with the United States over the last two American administrations, implementing policies to improve supply chain transparency and imposing tariffs on China’s excess steel capacity to protect our North American advantage, and our workers from unfair trade with China. No other steel trading partners in the world have worked to align as closely as Canada and the United States.

The Canadian government needs to actively engage the incoming U.S. administration and present a holistic case that an aligned North American approach will only strengthen our economic security in the face of serious threats around the world.

Can Ottawa punch back?

By Xavier Delgado, senior program associate, Canada Institute, Wilson Centre

Much attention has been paid to how devastating a universal 25 percent tariff on U.S. imports from Canada would be for Canadian industry and businesses. South of the border, President-elect Trump’s critics are attacking his tariff plan for the inflationary effect it will have on everything, from groceries to gas. Meanwhile, his allies are praising the decision to leverage the expansive North American trade relationship as a bargaining chip to secure America’s borders from illegal migration and drug trafficking.

Not much focus is being directed towards how Canada might respond if Trump follows through on his plan. When he last imposed national security tariffs on Canadian steel and aluminum, Ottawa responded with retaliatory tariffs on U.S. exports. Would policymakers consider a proportional response in this latest scenario?

Canada is the top export market for 34 U.S. states; of those, it accounts for over 40 percent of total exports for four states (Arkansas, Maine, Michigan, and South Dakota) and over 25 percent for twelve others (Idaho, Illinois, Indiana, Iowa, Minnesota, Missouri, Ohio, Oklahoma, Pennsylvania, Vermont, West Virginia, and Wisconsin). Depending on what goods these hypothetical tariffs target, entire industries and communities at the state level could be impacted by Canadian retaliation.

However, tariffs would also greatly raise costs for Canadian consumers. The question of Ottawa’s ability to retaliate is less about whether Canada has the leverage to inflict pain on the United States and more about whether the public would support such actions even if they resulted in higher prices at the pump or checkout.

Given voters’ broad discontent with inflation, affordability, and the general state of the economy, the Canadian government has limited options to retaliate against the United States, at least to the same extent to which Canada would be targeted under Trump’s tariff proposal.

The best hope for Canadians and Americans is that their leaders can come to an agreement with the president-elect before the tariffs are implemented. The economic hardship caused by any other outcome would be devastating for citizens on both sides of the border.

Don’t expect Trump to back down

By Kirk LaPointe, a contributing writer to The Hub

Is there muster in the bluster? We have all seen this movie—the one that starts with friction and ends with fusion. But it feels like Donald Trump has been preparing to be president again since the insurrection days, so there is a seriousness this time missing last time.

It’s familiar turf for B.C. to be at odds with some part of America. At any given moment, our softwood lumber industry seems either ensnared in a tariff or arguing its way out of one. The U.S. homebuyer is the worst for it.

If there is a difference this time, it’s the focus on Canada not on our products as much as our practices—the perceptions of a porous border and an indifference to drug trafficking. But we’re neither the drug conduit nor the illegal immigrant pipeline Trump suggests. He watches too many TV hosts and listens to too few experts.

Trouble is, we’re depending on our dead-man-walking prime minister to calm a manic world leader. Any expectation of a full-scale backpedal from the U.S. administration is a moonshot, even if every rational expert predicts consumer pain on both sides of the border. More likely is a selective trade approach, leaving alone the industries America needs and stinging those it doesn’t, until Canada puts more boots on the ground at the border and finds more drugs to keep from America—or until whatever the president summons as the next villain to identify for his restless mind.

A stronger commitment to free trade is the only path forward

By Vincent Geloso, assistant professor of economics at George Mason University and senior economist at the Montreal Economic Institute

President-elect Trump’s threat of a 25 percent tariff on Canadian goods would be costly to Canadians. Economist Trevor Tombe estimates the cost at 2.6 percent of GDP—a huge cost that should concern Canadians.

Canadian politicians, however, know the policy course to follow. They have known it for years. What must be done is a genuine commitment to free trade. The president wants to boast about ending practices he sees as unfair to Americans. Many of these, such as supply management in dairy and poultry, also harm Canadians by pushing nearly 189,000 people below the low-income threshold and raising household costs by about $400 per family. Let us trifle with his demands, recognizing that meeting them simply means ending the misguided policy of making Canadians poorer through our own protectionism. For good measure, why not remove remaining Canadian tariffs on clothing, textiles, rubber, leather, and footwear too?

What must be avoided is retaliating by raising tariffs on imports to Canada. This approach has been tried before—during the Great Depression, in response to the Smoot-Hawley Tariff—and only served to deepen and prolong the depression. Anything like that is akin to cutting off one’s reproductive organs to spite one’s wife—insanely idiotic.