Will Trump‘s Tariff Threats Spark a Trade War with Canada?
Experts warn that Canada needs to be prepared for the possibility of significant tariffs on its exports to the US if President-elect Donald Trump follows through on his campaign promises.
Trump has made it clear he intends to shake things up on trade, using tariffs as his weapon of choice. He vowed to impose tariffs on goods, particularly targeting Mexico and Canada, unless they take action to curb illegal immigration and drug flow across their borders.
The threat has set off alarm bells in Canada, even though many consider it an empty threat. The reality, however, is the potential economic fallout couldn’t be ignored.
“We’re in a very uncertain period right now,” Steve Verheul, former chief trade negotiator for Canada. said during a recent panel hosted by BMO. “Our economies are integrated, our supply chains are closely intertwined, and we would be in for a highly disruptive period of time if these tariffs were to be put in place.”
Verheul insists that Canada is actively trying to dissuade the incoming administration from enacting such a drastic policy, but if Trump follows through, Canada is prepared to fight fire with fire, retaliating with tariffs of its own.
Prime Minister Justin Trudeau recently met with Trump at Mar-a-Lago and briefed opposition leaders this week on the government’s plan to address the border security concerns raised by Trump.
Trump initially threatened a 10 percent tariff on all imports, including Canada. He later shifted his focus to a potential 25 percent tariff on Mexican and Canadian goods.
Doug Porter, chief economist at BMO, thinks imposing broad-based tariffs across the board is unlikely, especially on essential imports like energy.
“I think we should take the threat seriously, or at the very least prepare and consider what broad-based tariffs could mean for the economy,” added Porter. “The reality is, we’re dealing with an overtly protectionist president who is very fond of using tariffs.”
Although financial markets don’t appear to believe Trump’s threats will materialize, experts are taking note of his insistence on using tariffs as a bargaining tool.
Verheul points out that a 25 percent tariff across the board would be extremely damaging to the Canadian economy, with Mexico facing similar consequences.
Verheul sees Trump’s love for tariffs as a method to persuade American businesses to return home, address trade deficits, and increase revenue.
Yung-Yu Ma, BMO’s chief US investment officer, believes that while Trump’s interest in tariffs isn’t new, this time it’s more serious.
“President Trump is definitely more emboldened with tariffs this time around than he was in 2017, 2018.”
However, while not seeing the sweeping tariff threats as credible, Ma acknowledges the possibility of focused tariffs on particular goods, seen as bargaining chips.
“I think there’s a good chance that all these tariff discussions will start to evolve into a renegotiation of the Canada-US-Mexico Agreement, and we would attempt to address some of those issues within that negotiation,” said Verheul.
He further added, “So hopefully short term, but it’s going to be a rocky period and a lot of chaos in the market.”
With the review of the Canada-United States-Mexico Agreement (CUSMA) due in 2026, Verhel believes 2025 will be crucial, with trade negotiations dominating the political discourse.
Canada’s response to the potential tariff threats remains to be seen, but one thing is clear: those impacted most by the threatened levies, businesses and Canadians, will be watching closely how both governments navigate these rocks ahead.
What diplomatic efforts are being made to prevent a trade war between the U.S. and Canada?
Will Trump’s Tariff Threats Spark a Trade War with Canada?
**Host:** The transition period is always a time of uncertainty, but this year feels especially tense. One of the biggest looming questions is how President-elect Trump’s trade policies will affect our northern neighbor, Canada. He’s threatened significant tariffs on goods from Mexico and Canada, citing concerns over illegal immigration and drug trafficking. Joining us today is Steve Verheul, former chief trade negotiator for Canada, to discuss the potential fallout and Canada’s response.
**Verheul:** Thanks for having me. These are indeed uncertain times. Our economies are deeply intertwined, and any disruption to that delicate balance could be very damaging.
**Host:** So, how seriously should we take these threats?
**Verheul:** I think it’s crucial to take them seriously. While some might dismiss them as campaign rhetoric, the potential consequences are too great to ignore. If these tariffs are enacted, we’re looking at a major disruption to supply chains, increased costs for businesses and consumers, and potentially even job losses on both sides of the border.
**Host:** Canada has responded with its own threats of retaliatory tariffs. Is that a likely scenario?
**Verheul:** Absolutely. Canada is committed to defending its interests. We’ve made it clear that we’re prepared to fight back if necessary. We hope it doesn’t come to that, but we’re not afraid to take a stand for our economy and our workers.=[[1](https://www.cnn.com/2024/11/25/politics/trump-tariffs-mexico-canada-china/index.html)]
**Host:** Are there any signs that the incoming administration is willing to reconsider these proposals?
**Verheul:** We’ve certainly been engaging in dialogue with the Trump transition team, expressing our concerns and highlighting the negative impact these tariffs would have. Prime Minister Trudeau’s recent meeting with President-elect Trump was a step in the right direction, and we’re hopeful that we can find common ground.
**Host:** What’s the message you’d like to send to Canadians who are worried about the impact of these potential tariffs?
**Verheul:** I understand the anxiety. This is a complex situation with no easy answers. But I want to assure Canadians that the government is actively working to protect our interests, and we’re exploring every possible avenue to avoid a trade war. We’re confident that we can navigate this challenge and emerge stronger on the other side.
**Host:** Steve Verheul, former chief trade negotiator for Canada, thank you for your time and insights.
**Verheul:** My pleasure.
