It is not an exit anyone would have expected. Justin Trudeau will end his final days as Canada’s prime minister with the country tossed into economic turmoil if President Trump follows through on his plan Tuesday to impose 25 percent tariffs on Canadian exports.
While Canadian officials have spent much of last week in Washington trying to fend off the president’s tariffs, which will also apply to Mexico, those efforts have so far been futile. If tariffs do go into effect, Canada is poised to retaliate, setting off a trade war.
Mr. Trump has offered various rationales for the tariffs, which were supposed to go into effect at the beginning of February but were suspended for 30 days. He says the United States has been destabilized by large numbers of unauthorized migrants, as well as large quantities of fentanyl, crossing the border from Canada. U.S. government statistics do not support either claim.
Mr. Trump has also claimed that Americans “subsidize Canada” by providing hundreds of billions of dollars a year — though he has not provided any evidence — and has urged companies to move their plants out of Canada to the United States. Mr. Trump has complained about Canada’s trade surplus with the United States, which is mostly driven by oil and gas exports and totaled $63 billion last year.
Whatever the reason, there is widespread consensus in Canada that tariffs would inflict major damage on the country’s economy, which is dependent on exports as well as industries that are tightly integrated with the American market.
Jean Simard, the president of the Aluminium Association of Canada, recalled the effect 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
Just 19 kilograms of fentanyl were intercepted last year at the Canada-U.S. border, compared with almost 9,600 kilograms at the border with Mexico, according to U.S. Customs and Border Protection. And an investigation by The Globe and Mail, a newspaper in Toronto, found that the Canadian figure was inflated by the inclusion of seizures that were not related to the border.
U.S. authorities last year arrested roughly 24,000 people crossing illegally from Canada into the United States, compared with more than two million people who were apprehended at the southern border.
Still, Mr. Trudeau’s government moved swiftly to placate Mr. Trump’s concern about both issues by investing 1.3 billion Canadian dollars (about $900 million) on a series of measures to fortify the border.
They 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 large number of its officers to border patrol and purchasing of a variety of electronic surveillance devices, including drones.
The increased border security has led to the apprehension of a small number of people entering Canada from the United States.
While Mr. Trump said last week that he had seen improvement at both borders on migration, he added that he was not satisfied with how Canada and Mexico handled fentanyl smuggling.
While Mr. Trump insists that Canadian exporters will cover the cost of the tariffs, the levies would have to be paid by American importers. It is unclear if they would be able to recover the cost from Canadian firms.
The result, an overwhelming majority of economists agree, would be inflation and supply disruption in the United States, while Canadian industries could face large-scale layoffs.
Mr. Simard said that just the threat of the tariffs had already significantly raised the cost of aluminum in North America. If the tariffs go into effect, he estimates, the resulting aluminum price increases will add about $3,000 to the cost of making 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 winding up in an assembled vehicle.
Because 25 percent is far higher than the profit margins on cars and trucks, as well as the parts used to make them, industry executives predict that parts makers would soon stop shipping and factories would quickly close in all three countries, laying off thousands of workers.
“A 25 percent tariff across the Mexico and Canadian border will blow a hole in the U.S. industry that we have never seen,” Jim Farley, the chief executive of the Ford Motor Company, said last month.
American farmers would also face increased prices for potash, a vital fertilizer. About 80 percent of potash in the United States comes from Canada because of limited U.S. reserves.
No Desirable Choices
Mr. Trump has repeatedly suggested that the easiest way for Canada to avoid tariffs is to become the 51st U.S. state. His call for Canada’s annexation, as well as his repeated denigration of it as a viable nation, has infuriated many Canadians. That’s already led to calls to boycott American goods, caused Canadians to cancel U.S. vacations and rekindled affection for the maple leaf flag.
Mr. Trudeau has promised that Canada is prepared to respond with tariffs on U.S. imports. It would initially target 30 billion Canadian dollars’ worth of products, including Kentucky bourbon, from Republican states whose elected officials might have sway with Mr. Trump.
There have been proposals to cut off shipments of oil, gas and electricity to the United States or impose steep export taxes on those products.
While the tariffs are a clear violation of the free trade deal among Canada, Mexico and the United States that Mr. Trump renegotiated during his first administration, using its dispute-settlement system to strike levies down could take years. Nor is it clear that Mr. Trump would accept any ruling against the United States.
More to Come
Canada also faces a global 25 percent tariff Mr. Trump has promised to apply on steel and aluminum. Canada is the largest foreign supplier of both materials to the United States, and Mr. Trump has suggested that those tariffs will be stacked on top of the 25 percent tariff he has promised will come on Tuesday.
He has also talked about creating specific tariffs against automobiles and copper.
And next month, Mr. Trump plans to introduce a worldwide reciprocity-based tariff system. It would set tariffs based on other countries’ policies that affect trade with the United States, such as tariffs, taxes and subsidies. These were the terms of the trading relationship between Canada and the United States in the 19th and early 20th centuries.
The potential effect on Canada is unclear. Because of the free-trade agreement between the three countries, Canada charges relatively few tariffs on American goods, so reciprocal tariffs from Washington would be similarly limited. The tariffs Canada does impose are mostly on dairy, poultry and eggs.
Source link : https://www.nytimes.com/2025/03/03/world/canada/trump-canada-tariff-economy-impact.html
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Publish date : 2025-03-02 21:02:00
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