No one wins a trade war

Trump implements 25% import tariffs on Canadian goods, 10% tariffs on energy

Photo by Vony Razom on Unsplash

U.S. President Donald Trump has fired the first salvo in what will surely be a devastating trade war for North America, implementing 25% import tariffs on most goods from Canada and Mexico, with Canadian energy facing a reduced 10% import tariff. Canadians are united in their fury.

More than 75% of Canada’s exports go to the United States. Canada exports about $50 billion worth of goods each month, with the largest component being around $15 billion in energy products. Blanket import tariffs would almost certainly cause substantial job loss and a recession in Canada.

Job losses would be spread across multiple industries. The very integrated auto sector will see immediate consequences, and Ontario Premier Doug Ford has estimated close to 450,000 job losses in Ontario. The government of Quebec projects 100,000 job losses in aluminum, manufacturing, and forestry, and New Brunswick estimates 4,000 to 6,000 job losses.

The Canadian Labour Congress (CLC) has responded by calling for Canada to cut off American access to critical Canadian resources—including electricity, lumber, critical minerals, oil, and gas—until the tariffs are lifted. Alongside immediate support for affected workers, the CLC is also calling for a longer-term industrial policy to reduce Canada’s reliance on trade with the US.

The UFCW, a union that represents many workers in food production and grocery stores, has responded with a call for us to Buy Canadian with a list of Canadian-made products to purchase in place of US products. Several provinces have already declared that US alcohol products will be removed from provincial liquor stores.

What are import tariffs

Import tariffs are taxes that a government charges on goods brought into the country. When a product crosses the border, the government of the importing country collects (and keeps) the tariff from the importing company, usually as a percentage of the total cost of the product. For instance, if a country has a 25% tariff on grain, a $10,000 load of barley would have a $2,500 tariff added to it, making the total cost to the importer $12,500. The importer would pay the producer of the barley the usual $10,000 and then pay the $2,500 tariff to their government. This means that the impact of tariffs is felt by companies who have to pay higher costs for goods from outside the country. But tariffs also affect consumers, since those higher costs are passed on in the price of the final product. Trump’s tariffs are almost certainly going to immediately increase the cost of essential goods for Americans, from gasoline and cars to food and electricity.

Import tariffs have historically been used to protect domestic industries when the imported goods are cheaper because of some unfair or undesirable advantage. For example, a foreign company may receive large government subsidies or operate under much lower labour and environmental standards, allowing it to set lower prices which then makes domestic producers and manufacturers uncompetitive. When properly calibrated, a tax on imported goods (import tariff) can create a more level playing field by making the cost of imports relatively more expensive, so that an importer may decide to source their goods domestically instead. This is not the case with Trump’s tariffs, and it’s unclear what his actual purpose is, or what would induce him to change his position.

What is Canada’s response?

Prime Minister Justin Trudeau announced retaliatory 25% tariffs on $155B worth of US goods, with $30B being implemented immediately, and the remainder in 21 days. He also said Canadians could do their part by avoiding purchasing US-made products or from US chains.

Several provinces have already responded with announcements detailing their immediate measures.

Nova Scotia:

• Doubling of tolls for commercial vehicles from the US as of Monday,

• Removing US alcohol from provincial liquor stores by Tuesday,

• Blocking US bidders on procurement and explore cancelling existing contracts.

British Columbia:

• Provincial liquor stores will stop purchasing US liquor from red states,

• BC government departments and crown corporations will prioritize Canadian goods and services in procurement.

Quebec:

• The premier of Quebec estimates the tariffs could cost Quebec 100,000 jobs, and announced 25% retaliatory tariffs.

Trump’s justifications are weak

In response to Trump’s concerns about the Canadian border, Ottawa already introduced $1.3 billion in spending in December's fall economic statement aimed at disrupting the flow of fentanyl and strengthening surveillance of the Canada-U.S. border.

However, Canada is not a major source of either illegal immigration or fentanyl to the United States. According to U.S. Customs and Border Protection, less than 20 kilograms of fentanyl were seized along the border with Canada last year, compared to more than 9,000 kilograms seized along the border with Mexico. And according to U.S. Customs and Border Protection, Canada’s borders only account for about 1% of the total number of persons who were stopped from attempting to illegally enter the United States between October 2023 and September 2024.

In terms of the trade deficit, Canada’s trade deficit with the US is its second smallest, only 4% of the overall U.S. trade deficit. The trade deficit is also heavily concentrated in energy (oil, natural gas, and electricity). More importantly, a trade deficit is not a subsidy; it reflects the higher purchasing power of the United States relative to the rest of the world.

Finally, Canada’s defense spending levels have been a long-time complaint from south of the border. Canada spent about 1.37% of our GDP on defense in 2024, but the federal government has already committed to increasing that to 2% within two years in response to Trump’s threat.

What comes next?

Canadians debated deeper economic integration with the US in the 1980’s, and the Canada - US Free Trade agreement was a hotly debated issue in the 1988 election. A broad coalition including labour unions, church groups, women’s rights groups, and the Assembly of First Nations were seriously concerned about the impact deeper integration would have on Canadian sovereignty. Ultimately, Canadians were convinced of the benefits, and Mulroney won the 1988 election. The CUFTA was implemented in 1989, followed by NAFTA in 1994.

Maude Barlow was co-chair of the coalition against the Canada-US Free Trade Agreement in the 1980’s.

Donald Trump’s tariffs are blowing up 30 years of North American economic integration, and Canadians are paying the price. Judy Rebick writes - “they should have listened to us about free trade.”

The economic debate that Canada is about to have may define the next 30 years. We should learn from our mistakes and focus on a long-term strategy to reduce Canada’s reliance on U.S. trade and build a thoughtful industrial policy.