Canada responds to tariff threats

According to Canadian Prime Minister Justin Trudeau, in response to the threat of US tariffs, Canada needs to adopt a short-term tactical approach and a long-term strategy.

In an effort to avoid a full-scale trade conflict with the US, Canada is preparing response scenarios to ensure that Canada-US trade remains mutually beneficial while also leveraging trade agreements with partners in Europe and the Pacific Rim.

With the goal of rebalancing the US trade deficit with other countries, President Donald Trump has announced plans to increase import tariffs on major US trading partners. One of the objectives is to compel investors to relocate production back to the US. The US administration’s plan disadvantages its partners and raises concerns about a potential new trade war, which could have a negative impact on the global economy.

Canada and the US are each other’s largest trading partners, with the value of goods and services crossing the border daily reaching approximately 2.7 billion USD in 2023. According to Statistics Canada, Canada’s total exports to the US in 2023 amounted to 594 billion CAD (about 408 billion USD). More than 43% of these exports came from key sectors such as oil and gas extraction, petrochemicals, automobile manufacturing, aluminium production and processing, aerospace, and agriculture and livestock.

Trump has delayed the implementation of a 25% tariff on Canadian imports for at least 30 days, giving Canada more time to strengthen border security measures in response to US concerns over drug smuggling. However, Canada sees these tariffs as an imminent reality and continues to prepare countermeasures in case a trade war with the US unfolds.

Previously, following Trump’s announcement of a 25% tariff on Canadian goods and a 10% tariff on Canadian energy exports, Prime Minister Trudeau declared that Canada would impose a 25% tariff on US goods worth 155 billion CAD (approximately 107 billion USD). In addition to tariff-based retaliation, Trudeau also stated that Canada is considering non-tariff measures on exports, including critical minerals, energy, and government procurement.

Acknowledging that retaliatory measures against the US will hurt Canadian citizens, Prime Minister Trudeau declared that he would defend Canada through “tariff strikes.” Accordingly, Canada’s import tariffs on US goods would apply to American beer, wine, and bourbon, as well as fruits and vegetables, perfumes, clothing, furniture, sporting goods, and a range of raw materials such as lumber, plastics, and various other products.

Amid the rising trade tensions with the US, Canada is seeking to strengthen its economic ties with the European Union (EU) in an effort to safeguard the rules-based trading system.

Ottawa is exploring new ways to help Canadian businesses access the markets of the EU’s 27 member states while also facilitating investment and business operations for European companies in Canada. One of Canada’s key focus areas in its relationship with the EU is cooperation on critical minerals.

Canada is also striving to diversify its export markets and reduce dependence on the US market. The country aims to increase exports to non-US markets by 50% by 2025. Canada has signed trade agreements with Indonesia and Ecuador and is actively promoting trade relations with countries in the Indo-Pacific region.

Maintaining a firm stance on protecting the rules-based trading system, Canada has stated that it will consider all options to counter unfair trade measures, including legal action at the World Trade Organisation (WTO).

However, President Trump’s executive order specifies that the US may increase or expand tariff measures if Canada imposes tariffs or similar actions on American goods. If Canada enforces tough measures, tensions could escalate, leading to a trade war that would economically harm both nations and dismantle the free flow of goods that has underpinned North American trade for decades.

In this context, strengthening economic ties with the EU, diversifying export markets, and defending the rules-based trade system remain Canada's top priorities.

NDO