Canadian government already bracing for potential Trump tariffs
Alexander Panetta | CBC News | Posted: November 3, 2024 9:00 AM | Last Updated: November 3
Across-the-board tariffs will likely materialize quickly, Trump's former trade czar has warned
Canada is preparing for the possibility of former U.S. president Donald Trump swiftly imposing a broad tariff on all U.S. imports if he's re-elected Tuesday, potentially sparking a damaging trade dispute.
Canadian officials received no reassurances in conversations with multiple Trump allies ahead of next week's vote, CBC News has learned from one official privy to the details of these talks.
Trump's proposal for a minimum 10 per cent global tariff has raised more alarms in Ottawa than any other promise by either U.S. presidential candidate.
To better understand how this might unfold, Canadian officials have consulted with contacts who were part of Trump's Treasury Department and trade office, including some likely to return to government if he wins.
Their concerns were not allayed.
"All indications are that former president Trump is committed to imposing tariffs, and doing it quickly," said one Canadian official with insight into these talks.
"He believes in tariffs as a policy tool."
That official, who requested confidentiality to avoid harming Canada-U.S. relations, stressed that it is unsurprising that Trump's supporters would avoid offering such assurances now, in the midst of a tight election race.
It's not the only Trump policy that would affect Canada. His promise to deport millions of undocumented migrants could create humanitarian pressure with increased asylum-seekers on Canada's border.
Because Trump has been vague on the details of his plans, he's allowed competing interpretations to take hold about what, exactly, he intends.
Decoding Trump's intentions
On one hand, the co-chair of Trump's transition team has dismissed the notion that his tariffs would apply to everything. Howard Lutnick says they would only touch specific products, and be used as a negotiating ploy to force other countries to open their markets.
On the other, Trump's former trade czar, Robert Lighthizer, is reportedly telling people that across-the-board tariffs will come quickly. He's even written in his book about how he'd design the policy.
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In his view, the tariffs should not just apply to all products — the 10 per cent should even grow every year until the U.S. ends chronic trade deficits, says Lighthizer, who has said he's open to returning to government.
Canadian business groups that met with Lighthizer when he was in Calgary this year did not come away reassured either.
These details matter to Canada.
The estimated damage to Canada
There's a wide range of estimates about the potential damage to Canada. One Washington think-tank says Canada could lose almost half a point of its GDP, but others suggest the damage could be far worse, even a devastating five per cent loss if the tariffs provoke a tit-for-tat trade war.
"Canada will not have faced a threat to its trade-driven prosperity like this in its entire history as a country," said Eric Miller, a Canadian-American trade consultant based in Washington.
So which is it: A blunt, across-the-board tariff? Or a surgical tool to steer certain manufacturing back to the U.S., and create leverage in trade talks?
"It's possible that both are true," said Christopher Sands, director of the Canada Institute at Washington's Wilson Center think-tank.
For example, he can't imagine a tariff on Canada's largest export to the U.S.: oil. It would be tantamount to imposing a carbon tax, anathema to Republicans.
This is precisely the case the Canadian government is preparing to make if Trump wins: that broad tariffs on Canada would risk inflation in the U.S., especially as one-quarter of all Canadian exports to the U.S. are energy products.
So here's what Sands envisions: a quick announcement, if Trump wins, that tariffs are being implemented, via one of several laws already on the books.
"He could say on Day One, 'I'm putting a 10 per cent tariff on everyone.' But I don't think it will kick in [immediately]," Sands said.
The implementation would happen gradually. Trump would, in the meantime, start meeting with foreign leaders and demanding changes to their trade policies, Sands says.
In Sands's view, Trump might say, "'If you don't do what I want, I'll put a 10 per cent tariff on all your stuff or maybe I'll put a 10 per cent tariff on this or that.' Some of this will take time."
For example, the U.S. has a list of grievances with Canada on trade: from dairy-import rules, to what counts as a North American car, to Canada's tax on tech giants, to its failure to halt shipments of goods produced in labour camps.
Whoever wins the White House, whether Trump or Kamala Harris, is expected to press for changes in those areas when the current continental trade deal comes up for review in 2026.
Pressure on defence
Canada will also face pressure to boost military spending. If Trump wins, that pressure risks being more acute.
One defence strategist in the last Trump administration, Elbridge Colby, touted for a potential senior role if Trump wins again, recently told CBC News he'd urge the president to consider economic threats if Canada doesn't take quick, meaningful action.
Sands says he can't imagine extra tariffs over defence spending. But he could envision the U.S. making Canadian-based firms ineligible for military contracts, or limiting their access to sensitive technology, which could force companies to steer manufacturing south.
Miller's advice to Canada is twofold.
What retaliation could look like
First, Canada should make itself as indispensable as possible, by developing critical-minerals resources, building up its defence, and taking on hard tasks related to managing international migration.
This, he said, would give Canada new leverage in Washington.
His second bit of advice? Be prepared to play hardball.
He'd draw up a list of business leaders close to Trump and prepare to squeeze their businesses with retaliatory tariffs.
"The point is not to hurt the U.S.," Miller said. "The point is to hurt the people around Trump, who are in a position to tell him, 'You know, maybe we shouldn't do this.'"
Canada has already hinted at potential retaliation. Canada's ambassador to Washington, Kirsten Hillman, warned of that possibility at the summer Republican convention.
Of course, Canada would inevitably emerge with bruises. A battle with the world's biggest economy is going to hurt, especially a trade battle in which the smaller party depends far more heavily on cross-border sales.
Canada buys fewer than 20 per cent of U.S. goods exports around the world, while the U.S. buys more than 75 per cent of Canada's total exports.
And that's one reason the above-mentioned study by the University of Calgary's Trevor Toombe warned things could get ugly — like, a five per cent loss of GDP ugly — if there's a trade war.
Of course much of this could be moot if Trump loses on Tuesday.
Canada would have inevitable trade disputes with Kamala Harris as president, such as those mentioned earlier plus the perennial rift over lumber.
Asked what distinct challenges they'd expect under a Harris presidency, Canadian officials mentioned her connections to the tech sector in her home state of California and said they expected aggressive pushback over Canada's digital-services tax.
For Canada, Miller characterized a Harris presidency thus: "A much simpler, more predictable administration with which to deal."