In a dramatic response to months of escalating trade confrontation with the United States, Canada revealed C$60 billion in counter tariffs. These tariffs will hit a broad swath of American products. This decision is another shot fired in the increasingly bitter trade war. With this move, Canada joins China as one of the only countries that are directly retaliating against former President Donald Trump’s tariffs. For the time being, as negotiations go back and forth, the ramifications of these tariffs are starting to emerge.
This current trade conflict is framed by an important backdrop. Specifically, in March, the Trump administration announced suspensions from tariffs imposed on goods that meet the requirements laid out under the Canada–United States–Mexico Agreement (CUSMA/USMCA). Now, Canadian businesses face a crippling 35% tariff on thousands of products. Products that pass CUSMA muster can still flow across the border duty-free. This complicated environment affects nearly 90% of Canadian merchandise exports to the U.S. For companies to take advantage of this duty-free navigation, they need to follow some detailed paperwork guidelines.
Canada’s responsive measures are taken actions as their largely aligned by growing pressure from the U.S. At the same time, the Canadian federal government is concerned about the impact of a 50% tariff on steel and aluminum. This tariff has been choking American automakers and rattling the entire industry. In response, Canada has significantly increased their defense spending and strengthened security along their mutual border. Ottawa has introduced relief programs to help industries affected by these tariffs. They created stronger border protections and installed a “fentanyl czar” to more aggressively address drug trafficking.
The tensions have deepened still more since Trump brought up perennial U.S.-Canada trade sore points, including Canada’s protective policies shielding its dairy altogethers. The Trump administration has justified these tariffs by alleging insufficient cooperation from Canada in controlling the flow of illicit drugs like fentanyl across the border.
Catherine Fortin-Lefaivre, a deputy representative from Canada’s trade sector, explained that as businesses became increasingly frustrated by the lengthy stoppages, their patience waned.
“It comes as no surprise that businesses are craving certainty after months and months of tumultuous announcements.” – Catherine Fortin-Lefaivre
The uncertainty surrounding these trade agreements has prompted nearly 40% of Canadian goods exporters to diversify their suppliers outside the U.S., while 28% have sought new buyers for their products. This move represents a shrewd pivot by the industry to guard their interests in the face of unpredictable and politically driven trade policy.
Canadian Trade Minister acknowledged that a resolution to the ongoing trade disputes “was not yet in sight,” reflecting the complexities of negotiations. Fortin-Lefaivre noted that businesses want a solution just as much as anyone, but they’re concerned about rushing to accept a bad deal.
“We all crave the certainty of a deal,” she said, adding, “But at the same time, they’re not craving certainty at the expense of a really bad deal.” – Catherine Fortin-Lefaivre
Academics tracking this situation have emphasized that Canada needs to be careful in its negotiations.
“The Americans have escalation dominance here. So you want to be smart about it,” stated Fen Hampson, a professor specializing in international relations.
Hampson thinks that Canadian negotiators have reason to be hopeful.
“It’s not the end of the world,” he remarked, emphasizing that “quality over speed and a rushed agreement matters a lot.” – Fen Hampson
Pessimistically, as the situation drags on, some observers believe that Canada’s strategy would be best served by waving a red flag at certain U.S. political dynamics. As Martha Hall Findlay said of Canadian political leadership, they’ve figured out that the best way to get re-elected is to put your economy first.
“He understands that doing what’s best for the economy right now is actually what’s best for him politically,” she explained. – Martha Hall Findlay
As negotiations drag on and both nations grapple with the ramifications of tariff implementations, Canada’s resolve may shape future trade relations. The threat of U.S. tariffs might actually work in Canada’s favor, giving them a new bargaining chip during negotiations.