No one could have predicted this kind of exit for Justin Trudeau. If President Trump enforces his plan to impose 25 percent tariffs on Canadian exports, the nation could be plunged into economic chaos as Trudeau concludes his term as prime minister.
Despite Canadian officials spending last week in Washington trying to counter the president’s tariffs, which will also affect Mexico, their efforts have yet to bear fruit. If enforced, Canada is set to retaliate, sparking a trade war.
Mr. Trump, in various statements, has justified the tariffs by claiming that the United States has been destabilized by large numbers of unauthorized immigrants and significant quantities of fentanyl crossing the border from Canada and Mexico. However, U.S. government statistics do not support these claims.
Mr. Trump has also alleged that Americans “subsidize Canada” by providing hundreds of billions of dollars annually — although he has not provided any evidence — and has urged companies to relocate their plants from Canada to the United States. He has also complained about Canada’s trade surplus with the United States, which is primarily driven by oil and gas exports and totaled $63 billion last year.
Regardless of the reason, there is widespread agreement in Canada that the tariffs would inflict significant harm on the country’s export-dependent economy, which is intricately linked with the American market.
Jean Simard, the president of the Aluminium Association of Canada, recalled the impact of a 10 percent U.S. tariff on Canadian aluminum exports during the first Trump administration.
“The 10 percent tariffs years ago were highly disruptive,” Mr. Simard said. “Twenty-five percent tariffs will be highly destructive.”
Border Response
In the past year, only 19 kilograms of fentanyl were intercepted at the Canada-U.S. border, compared to nearly 9,600 kilograms at the border with Mexico, according to U.S. Customs and Border Protection. Moreover, The Globe and Mail reported that the Canadian figure was inflated by the inclusion of non-border-related seizures.
U.S. authorities apprehended approximately 24,000 individuals last year who crossed the border from Canada into the U.S. without authorization, in comparison to over two million people who were apprehended at the southern border.
However, Mr. Trudeau’s government acted swiftly to address Mr. Trump’s concerns regarding both issues by investing 1.3 billion Canadian dollars (about $900 million) in measures to strengthen border security.
These measures included the appointment of a “fentanyl czar,” providing the Royal Canadian Mounted Police with two Black Hawk helicopters to monitor the 5,525-mile-long border, assigning a significant number of officers to border patrols and the purchase of an array of electronic surveillance devices, including drones.
The increased border security efforts have resulted in the apprehension of a small number of individuals attempting to enter Canada from the United States.
Although Mr. Trump stated last week that he has observed improvements in migration at both borders, he added that he was unsatisfied with how Canada and Mexico addressed fentanyl smuggling.
While Mr. Trump maintains that Canadian exporters will bear the cost of the tariffs, the levies would need to be paid by American importers. It is uncertain whether they could recover the cost from Canadian firms.
Most economists agree that the result would be inflation and supply disruptions in the United States, while Canadian industries might face large-scale layoffs.
Mr. Simard stated that the tariff threat had already raised the cost of aluminum in North America significantly. If the tariffs are implemented, he estimates that the resulting aluminum price increases will add about $3,000 to the cost of producing a Ford F-150 pickup truck.
Automotive trade between the two countries is roughly equivalent, and many auto parts cross the border several times before ending up in an assembled vehicle.
Because 25 percent far exceeds the profit margins on cars and trucks, as well as the parts used to manufacture them, industry executives predict that parts manufacturers will soon halt shipments and factories will rapidly close in all three countries, causing thousands of job losses.
“A 25 percent tariff on the Mexican and Canadian border will create a hole in the U.S. industry that we have never seen,” said Jim Farley, chief executive of the Ford Motor Company, last month.
American farmers would also face increased prices for potash, a crucial fertilizer. About 80 percent of the potash in the United States originates from Canada due to limited U.S. reserves.
Mr. Trump has repeatedly suggested that the easiest way for Canada to avoid tariffs is to become the 51st U.S. state. His calls for Canada’s annexation, along with his repeated degradation of the nation, has enraged many Canadians. This has led to calls to boycott American goods, cancellation of U.S. vacations by Canadians and a renewed affection for the maple leaf flag.
Mr. Trudeau has pledged that Canada is prepared to retaliate with tariffs on U.S. imports. The initial target would be 30 billion Canadian dollars’ worth of goods, including Kentucky bourbon, from Republican states whose elected officials may have influence over Mr. Trump.
Proposals have been put forth to stop shipments of oil, gas and electricity to the United States or impose steep export taxes on these commodities.
Although the tariffs are a clear violation of the free trade agreement between Canada, Mexico, and the United States that Mr. Trump renegotiated during his first term, utilizing its dispute-settlement system to challenge these levies could take years. Additionally, it is uncertain whether Mr. Trump would accept any ruling against the United States.
More to Come
Canada also faces a global 25 percent tariff that Mr. Trump has vowed to apply to steel and aluminum. Canada is the largest foreign supplier of these materials to the United States, and Mr. Trump has suggested that these tariffs would be added on top of the 25 percent tariff he plans to introduce on Tuesday.
Additionally, he has discussed the creation of specific tariffs against automobiles and copper.
Next month, Mr. Trump intends to introduce a worldwide tariff system based on reciprocity. Tariffs will be established according to other countries’ policies that impact trade with the United States, such as tariffs, taxes, and subsidies. This was the nature of the trading relationship between Canada and the United States in the 19th and early 20th centuries.
The potential impact on Canada is unclear. Due to the free-trade agreement between the three countries, Canada imposes relatively few tariffs on American goods, so the reciprocal tariffs from Washington would be similarly limited. The tariffs that Canada does impose are primarily on dairy, poultry, and eggs.