(With Donald Trump’s return to the U.S. presidency, the international spotlight is once again focused on the White House. Queen’s Law experts share their insights on how the new administration’s policies could impact Canada and the world. In the third installment of this three-part series, Professor Nicolas Lamp explores the implications for trade policy.)
The one thing that is certain about the second Trump administration’s trade policy is that nothing is certain. As the Financial Times columnist Alan Beattie likes to say, when it comes to what Trump will do on trade, “nobody knows anything.”
Trump originally said that he would impose a 25 per cent across-the-board tariffs on all Canadian imports on his first day in office. He did not impose them, but then casually hinted that he might impose them on February 1. He may – or he may not. And if he imposes those tariffs, his real motivation remains unclear. In his initial announcement of the tariffs, Trump said that the tariffs would stay on until Canada stopped migrants and drugs flowing across the border. More recently, Trump has gone back to griping about the U.S. trade deficit with Canada, alleging that the U.S. is “subsidizing” Canada to the tune of $100-billion. The charge makes no sense; it is like saying that the tenants of Trump Tower in New York “subsidize” Trump because they are buying more from him than he is buying from them.
The bottom line is that Trump simply seems to dislike the fact that the United States is buying anything from Canada. But will that dislike be strong enough to overcome the sheer economic absurdity of imposing a 25 per cent tariff on products from the United States’s two largest trading partners (Mexico and Canada)? It is anyone’s guess.
The Canadian government is preparing for all eventualities. It has several packages of retaliatory tariffs ready to go. The trade relationship between Canada and the United States is not free of friction at the best of times, so Canadian officials know how to use tariffs to hit the United States for maximum political effect.
However, this time around the threat to Canada – and especially to the Canadian car industry, which is deeply integrated with its U.S. counterpart – is so serious that Canadian politicians have been considering a different set of measures, namely, restricting Canadian exports of goods that the United States needs, such as oil, gas, electricity, and critical minerals.
This is a truly dangerous development. Putting Canada’s willingness to supply the United States into question incentivizes U.S. companies to decouple economically from Canada to ensure the resilience of their supply. From Canada’s perspective, that would be a prescription for turning what might be a four-year nightmare into permanent economic harm.
Even if the worst can be avoided, Trump’s tariffs threats have already changed the economic relationship between Canada and the United States indelibly. Any company that is considering an investment in Canada with the aim of exporting to the United States will now hesitate to do so, which will have a chilling effect on Canada’s economy.
To counter these effects, Canada urgently needs to harness other sources of economic growth. The basic prescriptions are well-known; they include dismantling barriers to inter-provincial trade and strengthening Canada’s trade ties with countries other than the United States – what is known as trade “diversification”. If anything is certain as the second Trump administration gets to work, it is that Canada needs to get its own house in order to be better able to withstand the economic upheaval that is coming its way from south of the border.
Professor Nicolas Lamp specializes in international trade law and policy. He is the Academic Director of Queen’s International Law Programs, the Director of the Annual Queen’s Institute on Trade Policy, and previously worked as a Dispute Settlement Lawyer at the World Trade Organization’s Appellate Body Secretariat. He is the co-author of Six Faces of Globalization: Who Wins, Who Loses, and Why It Matters (Harvard University Press, 2021), which the Financial Times and Fortune named a Best Book of the Year.