A Trade War With…Canada? Proposed Tariffs Against the North as well as East

Less than a month after his election win, President-elect Donald Trump disabused anyone holding the notion that his trade sanctions were targeted only at China by announcing he would sign 25% blanket tariffs against all products imported from the USA’s other two top trading partners, Mexico and Canada, adding that they will remain in effect “until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!”

In Canada, the announcement created a stir, if not outright consternation, not just from international business stakeholders, but from everyone cognizant of the deeply interconnected trade relationship between Canada and the United States, reflected by the subsequent drop of the value of the Canadian dollar in foreign exchange markets.

Canada’s economy is deeply intertwined with that of the USA’s. According to Statistics Canada, in 2022, 63.4% of Canada’s exports went to the US. Much of this trade involves luxury goods, such as automobiles and alcohol, and more saliently, critical resources: 85% of the US’s electricity and 60% of its crude oil imports are derived from Canada; further, they are also a top supplier of metals, including aluminum, steel, and uranium.

Canadian stakeholders are well aware of this dependency, and have responded with retaliatory warnings: Danielle Smith, Premier of Alberta, responded by pointing out the US is Canada’s “biggest customer by a mile,” and that American factories are dependent on Canadian raw materials. Ontario’s Premier, Doug Ford, responded more directly, saying “we are going to use every tool in our tool box to defend Ontarians and Canadians,” and threatened to respond with restrictions on imports of US alcohol into Canada and restricting energy imports into the US.

Businesses concerned about escalating rhetoric however, may have reason to suspect there is more heat than light in these exchanges. The very interconnectedness of the US and Canada’s economies would make a trade war so costly that both countries have substantial incentives to negotiate an amicable agreement, and while the US holds greater negotiating power against Canada, President-elect Trump is unlikely to want to make any moves that increase energy prices for Americans, as a trade war with Canada inevitably would.

In fact, Canada’s Prime Minister, Justin Trudeau, and Canada’s ambassador to the US, Kirsten Hillman, have both already met with Trump, and the latter has pointed out the inequality in dealing with Mexico and Canada’s relationship with the USA on equal terms. Hillman, who has been Canadian ambassador to the United States since 2020, was unfazed by Trump’s rhetoric, saying “Canada can take it. You know, we have a strong sense of who we are and we can dish it out.”

Ultimately, the trade community in the US and Canada should expect that the prevailing negotiations will reflect that the best interests of the United States are closely aligned with those of Canada themselves, and will probably involve more, not less trade, as global trade continues to complexify.

Allyn International’s service suite includes consultation on current and developing issues in the US trade community. Reach Allyn here for a consultation or, contact us sales@allynintl.com or 239-489-9900.

Contributor: Andrew Dosher

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About Allyn International 

Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance.  Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North America, Europe, and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China and Prague, Czech Republic. For more information, visit www.allynintl.com.