Canada is poised to respond vigorously and promptly to tariffs imposed by US President Donald Trump on its goods. Trump has announced plans to implement a 25% tariff on products from Canada and Mexico, effective this Tuesday. Last month, Trump temporarily halted his intention to impose a 25% tariff on most Canadian imports, with “energy resources” facing a reduced 10% rate. With this pause now lifted, and the US moving forward with imposing steep taxes on goods from one of its primary trading partners, a trade conflict appears imminent. Canadian Foreign Minister Melanie Joly asserted to journalists on Monday, “If Trump enforces tariffs, we are prepared.” Ottawa intends to counter with retaliatory tariffs on US imports worth C$155bn ($107bn; £ 84bn), with an initial $30bn set to be imposed immediately on everyday items like pasta, clothing, and perfume. Tariffs play a crucial role in Trump’s economic strategy, aimed at bolstering the US economy, safeguarding jobs, and generating tax revenue. Economists warn that such actions could have immediate detrimental effects on Canada’s economy, potentially leading to higher prices for American consumers. Prime Minister Trudeau acknowledged the challenging times ahead in a televised address to Canadians. Despite Canada’s efforts to avert a trade dispute, tensions have escalated. Trudeau previously expressed readiness to explore various response options. Canada had previously engaged in a tariff dispute with Trump, following the imposition of tariffs on Canadian aluminum and steel. Ottawa retaliated with targeted tariffs, including on products such as Florida orange juice and whiskey from Tennessee and Kentucky. Both nations eventually reached an agreement to lift the tariffs after a year. As US exports to Canada make up 17% of the total, and over 75% of Canada’s exports go to the US, Canada would face more significant economic repercussions in a trade war. Hence, targeted tariffs are viewed as the initial and less impactful approach. By selectively imposing tariffs, Canada can exert pressure on the US without adversely affecting its citizens, although domestic prices may rise. A “Buy Canadian” initiative is being promoted to mitigate potential retaliatory effects. Critics note that Trump’s reduced political vulnerability, as he is ineligible for reelection, may lessen the impact of Canadian countermeasures. Economists emphasize the need for strategic and prudent actions to navigate the evolving trade landscape effectively.
The initial trade dispute with its neighbor involved matching dollar-for-dollar tariffs. Canada imposed equivalent tariffs on American aluminum and steel, ensuring that the total value taxed matched the US tariffs on Canadian exports, amounting to approximately C$16.6 billion at the time.
In the current situation, the potential use of dollar-for-dollar tariffs could be significantly larger, with Canada listing $30 billion worth of goods it would tax until the US lifts its tariffs against Canada. The list predominantly includes agricultural products but also features non-edible items such as dental floss and luggage. This could potentially expand to an additional C$110 billion in goods.
The broader Trump administration’s tariffs become, the more items Canada could tax in retaliation. Some areas of Canada, like Saskatchewan, are not in favor of blanket tariffs on US goods, fearing the negative impact on the country.
The repercussions of promised US tariffs on Canadian goods, followed by dollar-for-dollar tariffs from Canada, could potentially trigger a recession and inflation, leading to stagflation. The decision on how to proceed will likely be influenced by political considerations, with polls indicating public support for retaliation and many business leaders advocating for targeted tariffs.
Canada holds significant leverage in the form of energy resources, supplying electricity to numerous US states and being the top crude oil provider to the US. Suggestions have been made about using energy exports as a bargaining chip, but such moves could have repercussions, particularly in oil-rich provinces like Alberta.
Other proposals include removing American-made alcohol from shelves in certain provinces or refraining from immediate retaliation, with ongoing negotiations taking place to prevent the imposition of US tariffs. However, with the threat of retaliatory tariffs looming, Canada is also preparing relief measures for businesses affected by the potential trade barriers.
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