U.S. President-elect Donald Trump announced on Monday that of 25 per cent on Canadian and Mexican goods imported into the United States as soon as he takes office in January.
The revelation that he would proceed with levies was not altogether surprising, as he had campaigned on the issue in the lead-up to his re-election last month. But analysts were expecting a tariff of about 10 per cent, rather than the hefty rate he is now promising.
Economists predict that the imposition of tariffs could have far-reaching implications for everything from cross-border relations to the hammering of the Canadian economy, which sends about 75 per cent of its exports to the U.S.
We spoke with Dr. Brian Bow, chair of Dal's Department of Political Science, about what this inaugural gesture will mean for the Canadian consumers, the economy and industries such as oil and gas, auto manufacturing and agriculture that rely heavily on our neighbour to the south.听
What is the rationale for these tariffs?鈥�
With Donald Trump, as always, it鈥檚 hard to say for sure. Not because his motives are especially complex. He is still evidently mostly driven by ego and emotional impulses, and this time around there are fewer checks on those impulses. He said repeatedly during the campaign that he was going to use tariffs to force Mexico to try harder to 鈥渇ix鈥� the problems at the border. Sometimes he would include Canada as part of the border problem. This most recent, post-election version of the threat clarifies that Canada is definitely in the crosshairs, and it puts drug trafficking 鈥� especially fentanyl 鈥� on the same level as migration. It鈥檚 ridiculous to think that economic arm-twisting is going to lead to real solutions to these problems, but Trump might actually believe it.鈥�
How worried should Canadians be?
Very worried, I think. In the first Trump administration, there were some people around him who were in a position to talk him out of following through on his worst ideas, or at least blunt the sharp edges or slow him down. This time, there are going to be virtually no 鈥済uardrails.鈥� In normal times, Canadian policymakers (and academic observers) often reassure us that the U.S. won鈥檛 actually follow through on things that might hurt Canada, because those things would bounce back and do damage to the U.S. as well. Now we can鈥檛 make that argument because Trump doesn鈥檛 make those calculations. He鈥痠s鈥痝oing to do things that鈥痺ill鈥痙irectly undermine American interests. Eventually, when those self-inflicted wounds start to really hurt, there鈥檚 going to be backlash from within the U.S., and Trump will back off. Of course, he won鈥檛 say he鈥檚 backing off; he鈥檒l lie about the tariffs鈥� effects or blame them on someone else, declare victory and move on to something else. The fact that he will probably back off eventually shouldn鈥檛 reassure us too much, because even a short-run application of tariffs as high as he鈥檚 proposed would do enormous damage.
鈥疻hat is the immediate effect of these tariffs going to be on Canadian manufacturing, exports and employment?听
In the short run, orders for Canadian products will be cancelled or cut back, there will be some layoffs and closures, and the Canadian dollar will take a hit. In the longer run, prices for many products will go up in both countries, big companies that depend on cross-border supply chains will try to reorganize so that they are less reliant on components and services from Canada, there鈥檒l be a lot more layoffs and closures, and we鈥檒l go into a recession. How severe all of that will be depends on what tariffs Trump actually ends up imposing, whether and how Canada retaliates, and how long it takes for powerful interests in the U.S. who鈥檝e been impacted to mobilize against the tariffs.
鈥疻hich industries or sectors will feel these measures most acutely and quickly?
There are two kinds of industries that will be hit hardest 鈥� products that depend on export markets in the U.S., like oil and gas, and products that are built in cross-border supply chains, like autos. Those two sectors specifically will be pivotal in all of this because each represents a huge chunk of our exports, and each is geographically concentrated in ways that will put intense pressure on both federal and provincial governments in Canada.
How will Canadian consumers be affected if retaliatory tariffs are imposed on U.S. goods?听
Canadian consumers will be hurt whether Canada retaliates or not. Last time, Canadian retaliation was mostly symbolic and designed to have effects on Trump鈥檚 re-election math. This time, it will have to be designed to push key stakeholders in the U.S. to mobilize against Trump鈥檚 tariffs, without triggering resentment among potential allies in the U.S. or hurting Canadian consumers too much. So, I expect a lot of it will be aimed at luxury products made in specific U.S. states, where there鈥檚 some reason to hope that members of Congress and/or state governments might be able to put pressure on the White House.
How will this reframe Canada-U.S. economic relations, assuming president-elect Trump follows through with his proposal?
I think that reframing has already happened. Trump鈥檚 America First agenda and the renegotiation of NAFTA made it very clear that we can no longer count on stability and mutual benefit in bilateral relations with the U.S. These new tariff threats just reinforce that. I expect over the next few months we will hear people talking more about whether there are ways to reduce our reliance on the U.S. market, by becoming more self-reliant and/or diversifying our export and investment relationships. We鈥檝e tried that in the past, without much success, but we may feel compelled to try again. In the short run, there will be efforts to mollify Trump, by鈥攆or example鈥攖ightening up the border and promising to spend more on defence. In the longer run, there鈥檒l be efforts to try to strengthen ties to Europe and to find new partners in other parts of the world.鈥�
What will this mean for the fate of the Canada-United States-Mexico Agreement, or CUSMA?
CUSMA was scheduled to be reviewed in 2026 and there was already quite a bit of concern that a second Trump administration would push for further concessions from Canada and Mexico before it could be renewed. If Trump goes ahead with the tariffs he鈥檚 threatened, that would be a direct assault on CUSMA itself. Tariffs like the ones he鈥檚 proposed directly and clearly violate the core rules of CUSMA, and could be read as a unilateral abrogation of the deal. Canada and Mexico will try to protect CUSMA and keep it in place, no matter what Trump does, but they鈥檒l have to think seriously about what the agreement is worth if the same leader that initiated its (re)negotiation is prepared to flush it down the toilet on his first day back in office.