Canada Prepares for a Possible Trade Showdown with Incoming US Administration
Canada’s former chief negotiator says the country needs to be ready to respond to potential tariffs from the incoming US president. While the threat may not seem credible to many, experts caution against dismissing the possibility entirely.
Canada faces a period of uncertainty with a new US administration promising significant economic changes.
"We’re in a very uncertain period right now," Steve Verheul told an online panel hosted by BMO on Wednesday. "We need to take those threats seriously while exploring what we can do to prevent them from ever being implemented."
Trump has promised to impose tariffs on goods imported from Canada unless Mexico and Canada met certain demands regarding illegal immigrants and the flow of drugs across their shared borders.
Assessing the Potential Impact of Tariffs
Experts have warned such tariffs would be damaging to the Canadian economy.
"Our economies are deeply integrated, our supply chains are closely intertwined, and we would be looking at a highly disruptive period if tariffs are imposed," Verheul warned.
Canada plans to try and dissuade Trump from enacting such a dramatic policy change, but Verheul acknowledges the possibility of Canadian retaliation if Trump follows through.
Prime Minister Justin Trudeau recently met with Trump at Mar-a-Lago. Trudeau then briefed opposition leaders on the government’s plan for the Canada-US border, signaling the seriousness with which the threat is being taken.
YS understanding the incoming President’s position
During the panel, Verheul was joined by BMO chief economist, Doug Porter, and Yung-Yu Ma, Chief Investment Officer for BMO Wealth Management in the US.
"Initially, Trump threatened a blanket 10% tariff on all imports, with a more severe 60% hit on imports from China, but recently he threatened levies as high as 25% on both Mexico and Canada.
Porter believes that while such high tariffs on all imports are unlikely, particularly on essential imports like energy, the threat shouldn’t be dismissed. Financial markets are not yet treating the threat seriously, but they are prepared for possible volatility.
"I think we should take these threats seriously," Porter said. "At the very least, we need to be prepared and consider what broad-based tariffs could mean for the economy."
"We’re dealing now with a very protectionist president who is very fond of using tariffs as a political tool."
Verheul believes that 25% tariffs applied across the board would damage not only the Canadian economy, which is heavily reliant on exports to its southern neighbour, but also the Mexican economy.
Trump is a known proponent of tariffs, viewing them as a way to bring back manufacturing to the US, address trade deficits and generate more revenue.
Navigating a Different Trump Administration
While Trump’s interest in tariffs is not new, Ma believes this is not the same Trump that ran in 2016.
“President Trump is more emboldened this time around than he was in 2017 or 2018.
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While Ma agrees that sweeping tariffs on all imports appear unlikely, he believes that limited tariffs, levied on specific goods, could be used as bargaining chips.
“The Canada-United States-Mexico Agreement (CUSMA) is up for review in 2026. That means 2025 will be a year of intense negotiations. We are already seeing signs that these tariff discussions could evolve into a renegotiation of the agreement,” commented Verheul.
“We will need to address any issues arising from the threat of tariffs during those negotiations,” he said.
“It looks like a rocky period is ahead,” Verheul concluded. “It will likely be a time of significant change and a great deal of uncertainty.”
What is Canada’s current economic relationship like with the United States? What specific steps is Canada taking to prevent the imposition of tariffs by the incoming US administration?
## Interview: Canada Braces for Potential Trade Tensions with New US Administration
**Host:** We’re joined today by Steve Verheul, Canada’s former chief negotiator, to discuss the looming threat of US tariffs on Canadian goods. Steve, thanks for being here.
**Verheul:** Happy to be here.
**Host:** You recently characterized this period as “very uncertain” for Canada. Can you elaborate on the reasons behind this uncertainty?
**Verheul:** Certainly. The incoming US administration has promised significant economic changes, and among these is the possibility of imposing tariffs on goods imported from Canada. While this threat might seem implausible to some, it’s crucial we take it seriously and explore all avenues to prevent its implementation. [[1](https://apnews.com/article/canada-trump-tariffs-trudeau-c741393c2f7c7545e9714839cfbbda45)]
**Host:** What are the potential ramifications of such tariffs on the Canadian economy?
**Verheul:** The impact would be significant. Our economies are deeply intertwined. Our supply chains are closely integrated.
Imposing tariffs would disrupt this delicate balance and lead to a highly destabilizing period for both countries. [[1](https://apnews.com/article/canada-trump-tariffs-trudeau-c741393c2f7c7545e9714839cfbbda45)]
**Host:** What steps is Canada taking to address this potential crisis?
**Verheul:** We are actively engaged in high-level discussions with the incoming administration, attempting to dissuade them from enacting these tariffs.
At the same time, we’ve made it clear that Canada will retaliate with our own set of tariffs if necessary. Prime Minister Trudeau recently met with the President and briefed opposition leaders on the government’s broader plan for managing the Canada-US border. This demonstrates the seriousness with which we are taking this threat.
**Host:** It seems like a delicate balancing act. How do you see this situation unfolding?
**Verheul:** It’s certainly a complex scenario. We hope diplomacy will prevail, but we’re prepared for all possibilities. The potential for disruption is real, but Canada is a resilient nation.
We’ve weathered economic storms before and we will navigate this challenge as well.
