Canada is facing its biggest economic challenge in decades. President Donald Trump’s administration has threatened to impose tariffs of 25 per cent on Canadian exports to the United States on Feb. 1, with another round possibly coming on April 1. This would slowly cripple Canada’s economy, raise the cost of virtually everything for Canadian families and put thousands of jobs at risk.
But that might only be the first course of a multi-course meal. It is unlikely that Trump is imposing tariffs because he holds a grudge against Prime Minister Justin Trudeau, as some suggest, or because he wants to turn Canada into the 51st state. Thinking that taking action at the border will save Canada from tariffs, as Trump’s pick for secretary of commerce, Howard Lutnick, stated during his Senate confirmation hearing on Jan. 29, is equally naïve.
Talks of a new state are cheap bullying tactics. The border is a convenient excuse to lend Trump’s bullying an air of credibility, and provide his Canadian apologists with talking points to parrot. Yet, there might be a method to the president’s madness. Canada would be wise to consider that he is using tariffs to inflict economic pain on Canadians, to weaken Canada and to renegotiate the United States-Mexico-Canada Agreement (USMCA) with us from a position of strength later this spring.
There are at least two more things on the menu:
First, Trump believes that Canada has treated American dairy producers unfairly. Though untrue, Canadian farmers have operated in an artificial market, isolated from competition and protected by import duties for years. Trump sought change when USMCA was first ratified in 2020, and will likely continue on the same path during his second term. Competing with American companies, whose dairy products have different standards and lower production costs, could be devastating to our agriculture industry and the families who make a living from it.
A compromise is likely to be reached on dairy import duties, because Canada has a lot of room to manoeuvre. Our dairy market is valued at US$16.2 billion (C$23 billion), and is projected to grow at a compounded annual growth rate of 5.63 per cent until 2030. Not only is the U.S. already exporting roughly $1 billion worth of dairy products to Canada per year, but its exports have grown by a whopping 63 per cent between 2013 and 2023 — largely due to the renegotiation of the North American Free Trade Agreement in 2018 (and its replacement with USMCA).
Second, Trump has repeatedly stated that he intends to repatriate auto sector jobs from Canada (and Mexico) back to American cities like Detroit. Making Canada an indispensable part of the American electric vehicle (EV) supply chain and imposing a 100-per-cent tariff on Chinese EVs was good enough for Joe Biden when he was president, but it isn’t good enough for Trump. He believes that Americans can and should be building their own cars.
I am not as optimistic for the auto sector, which directly employs at least 100,000 people in Ontario and more than half a million in directly and indirectly across all of Canada. These skilled manufacturing jobs put food on the table for thousands of Canadian families, contribute more than $18 billion to Canada’s GDP and serve as Ontario’s top export. The carrots that Canada might offer aren’t as clear on this front.
Can tax breaks, subsidies and a devalued Canadian dollar keep production costs low enough to convince Trump that it’s still in the best interest of American workers and consumers to keep these auto sector jobs in Ontario instead of shifting them to Michigan — a swing state that he flipped twice? Only time will tell. Yet one thing is certain: Canada must prepare for the worst.
National Post
George Monastiriakos is a part-time professor of law at the University of Ottawa.