Today’s daily Hub Youtube election show included Ian Lee, a professor at Carleton University’s Sprott School of Business, where he discussed Canada’s potential response to tariffs from the Trump administration.
Lee’s remarks focused on what he called the dangers of retaliatory tariffs, the importance of diplomatic solutions, and the need for Canada to realign its economic strategy.
Here are three takeaways from the discussion:
- Retaliatory tariffs function as harmful taxes that damage domestic economic health: Lee presented a comprehensive economic case against tariffs, framing them as self-imposed taxes that primarily burden domestic consumers and businesses, rather than foreign competitors. He explained that tariffs artificially raise prices across entire product categories, reducing consumer purchasing power and business competitiveness.
- Diplomatic negotiation is the only sustainable solution to trade conflicts: Lee advocated for a “Kissingerian” approach to trade disputes, emphasizing that just as most wars ultimately end through negotiation rather than military escalation, trade conflicts require diplomatic solutions. He argued that while negotiations may require difficult concessions (such as revisiting Canada’s digital services tax or interprovincial trade barriers) and be with an unpredictable president, these costs pale in comparison to the economic devastation of a full-blown trade war.
- Canada must realign its economic strategy around natural resource competitiveness: Lee critiqued Canada’s decades-long focus on manufacturing, arguing it ignores global market realities. He presented data showing Canada’s manufacturing decline (particularly in automotive production), despite massive subsidies, as protectionist policies in the U.S., EU, and China prevent meaningful export growth. Instead, he encouraged Canadians to focus on getting their natural resources to market.
The economic consequences of retaliatory tariffs
Responding to Prime Minister Mark Carney proposing a dollar-for-dollar retaliation and Conservative leader Pierre Poilievre planning to use the revenue from tariffs to cut taxes and provide relief to those most impacted, Lee described tariffs as an ineffective and counterproductive policy tool. He emphasized that tariffs function as taxes, increasing prices for both consumers and businesses. This, in turn, he said, reduces disposable income, stifles economic growth, and can lead to job losses.
To support his argument, Lee referenced historical examples, particularly the Great Depression, where tariffs (such as the Smoot-Hawley Tariff Act) exacerbated economic downturns rather than alleviating them. He noted that while tariffs did not cause the Depression, they exacerbated the problem and stifled international trade.
Lee also cited modern economic research, including studies from the Bank of Canada and analyses by Nobel Prize-winning laureates, which demonstrated that tariffs harm domestic economies. He dismissed the idea that tariffs could be beneficial in any form. “There is no redeeming argument in economic logic, theory, or practice to support tariffs,” he said.
Lee warned that retaliatory tariffs would be especially damaging, comparing them to “pouring gasoline on a raging fire,” rather than extinguishing it.
The case for negotiation over escalation
When asked how Canada should instead respond to U.S. tariffs, Lee firmly opposed retaliatory measures. Instead, he advocated for diplomatic negotiations as the only sustainable solution. Drawing a parallel to military conflicts, he noted that wars—whether trade or armed—are typically resolved through negotiation rather than further confrontation.
“You don’t end a trade war by announcing new tariffs,” Lee explained. “You end it at the negotiating table.”
He acknowledged that reaching a negotiated settlement would require concessions from Canada, such as revisiting policies like the digital services tax and reducing interprovincial trade barriers. However, he argued that these steps would be far less damaging than engaging in a full-blown tariff war.
Lee also criticized Canadian leaders for failing to communicate the economic risks of retaliatory tariffs to the public. He suggested that politicians often cater to public anger rather than explaining why retaliatory measures would ultimately hurt Canadian households.
“Self-harm is not a viable public policy,” he said, urging policymakers to use their platforms to educate citizens on the real costs of tariffs.
Reassessing Canada’s economic strategy: natural resources over Manufacturing
Finally, Lee focused on what he believes Canada’s economic priorities should be. He argued that the country has been pursuing a flawed strategy by heavily subsidizing manufacturing industries—such as automotive and aerospace—while neglecting its natural resource sector.
Lee pointed out that Canada’s manufacturing sector faces insurmountable trade barriers in key markets like the U.S., Europe, and China. For example, despite government support, Canada’s auto industry has declined in global rankings, dropping from one of the top producers at 5th place worldwide to 11th place in 2023. He attributed this to protectionist policies abroad, which prevent Canadian manufacturers from gaining significant market share.
In contrast, Lee highlighted Canada’s natural resources—including oil, gas, minerals, potash, uranium, and timber—as sectors where the country holds a clear competitive advantage. He criticized recent government policies, such as the Federal Impact Assessment Act (Bill C-69) and tanker bans, for stifling growth in these industries.
“We’ve been hamstringing our resource sector while trying to prop up a manufacturing sector that is doomed to fail,” he said.
Lee cited research from economists like Laval University’s Stephen Gordon and the University of Calgary’s Trevor Tombe, who have shown that natural resources have been the primary driver of Canada’s economic prosperity over the past two decades. Lee urged policymakers to shift focus toward these sectors, which he stressed have strong global demand, rather than continuing to subsidize industries that he insisted face structural trade disadvantages.
Generative AI assisted in the production of this summary. If you are quoting from or referencing this summary, please refer to the audio to verify.
