By Geoff Norquay 

January 31, 2025

Based on statements from the White House on Friday, we will know Saturday the details of President Trump’s threats of a 25% tariff on all Canadian products coming into the United States.

The potential impacts on Canada are dire. A Deloitte study estimates that a 25% tariff on Canadian exports to the United States could cost our economy $275 billion in GDP by 2030 and more than 200,000 in lost jobs.

Following testimony by key Trump key cabinet appointees Scott Bessent (Treasury) and Howard Lutnick (Commerce) at their confirmation hearings this past week, the real dimensions of the tariff threats and their implications for Canada have become more apparent.

• The border control and fentanyl issues cited as provocation for these punitive tariffs are a strategic negotiating tactic, meant to gain leverage or concessions on such issues as the entry of illegal aliens and drugs, or perhaps military spending.
• The second dimension is Trump’s executive order calling for federal agencies to investigate U.S. trade deficits and to refocus trade strategy as a matter of national security by April 1. These studies have more far-reaching objectives – to create structural changes to the way America trades, to bring economic production home to the U.S., and to force changes in the actions of trading partners that will drastically alter the global trading status quo.
• The third element of Trump’s tariff approach is revenue generation, to pay for the $4.3 trillion tax cut that Trump wants.

In response to the initial tariff threat, there has been outreach by the Prime Minister directly to Trump, and federal ministers and some premiers have met several times with his incoming cabinet secretaries, key advisors and key state governors. The PM and the premiers have largely agreed on dollar-for-dollar matching tariffs, except for Alberta Premier Danielle Smith and Saskatchewan’s Scott Moe, who disagree with the counter-threat of an export tax on Alberta’s oil and gas and Saskatchewan’s potash exports to the U.S.

Canada’s approach has been largely conditioned by the success of the actions we took during Trump’s first term in 2018 when he placed tariffs on our steel and aluminium. Canada hit back with retaliatory tariffs on a variety of sensitive American products, and Trump relented after a year. But some Canadian trade experts warn that Trump is much politically stronger today, has more capable advisors, and that his trade agenda is much more focused and muscular. Others caution that the relative size of the two countries and the structure of our trade relationship means that Canada is more vulnerable if its retaliatory response is dollar-for-dollar. They argue that because we are more reliant on U.S. trade, this would be disproportionately damaging to Canada.

If Trump’s tariff threat is realized, the federal government is reportedly planning to respond with a multibillion-dollar, pandemic style bailout for workers and businesses. With all signs indicating that a federal election will follow closely the end of the Liberal leadership in early March, how the federal government would get that package through the House of Commons is an open question. In addition, as the CD Howe Institute recently observed, Canada’s current deficit and debt levels are close to unsustainable, so federal capacity to insulate Canada with major spending is restrained.

Finally, if the U.S. approach to tariffs is with us for the long-term, Canada must begin to address the structural challenges our economy faces. One example is dismantling interprovincial trade barriers that are estimated to “add between 7.8 and 14.5 per cent to the price of goods and services we purchase.”

In addition, action is urgently needed to improve Canada’s weak productivity, which has plunged ever further since the pandemic. According to the federal Department of Innovation, Science and Economic Development, Canada’s overall 1.8% decrease in labour productivity in 2023 was the worst in the OECD. Over the past nine years, the current federal government has invested billions of dollars into misguided and failed schemes to bolster productivity, all of which have come to naught.

As an October 2024 University of Calgary analysis reported, “Overall, Canadian business productivity fell by 0.6 per cent over the past five years. This is in sharp contrast to the United States, which enjoyed a 10.1 per cent increase over the same period.”

These are problems that can be solved through policy innovation and political will. Geography, on the other hand, cannot.

Geoff Norquay is a principal with Earnscliffe Strategies in Ottawa. He was a senior social policy adviser in the Prime Minister’s Office from 1984 to 1988 and director of communications to Stephen Harper when he was leader of the Official Opposition.