News Analysis
With Donald Trump making a return to the White House in January, governments and the business community in Canada are gearing up for changes in U.S. policy.
Within days of Trump winning the election, the Liberal government
resurrected a cabinet committee—originally created after Trump took office the first time in 2017
—to focus on Canada–U.S. relations. Deputy Prime Minister and Finance Minister Chrystia Freeland said the committee was revived in response to an “urgent issue” on par with the COVID-19 pandemic.
Ontario Premier Doug Ford
said he’s “optimistic” about opportunities for cooperation with the new administration, while Alberta Premier Danielle Smith touted her province’s energy resources.
The business community and some pundits urged Canadian leaders to implement policies favourable to the business environment, align policy approaches with the United States, and work on negotiation skills to ensure the best outcome for Canada.
Tariffs
During his last presidency, Trump
imposed tariffs of 25 percent on Canadian steel products and 10 percent on Canadian aluminum imports in 2018, a move that led Canada to retaliate in a similar manner. The tariffs were lifted in 2019.
Trump has this time proposed to
impose tariffs of 10 to 20 percent on all imports into the United States. The tariffs would increase to 60 percent on all
imports from China and would be as much as 100 percent for countries that try to turn away from the U.S. dollar.
The United States is Canada’s
largest trading partner, with trade between the two countries totalling $960.9 billion in 2022. Eric Miller, president and founder of the Rideau Potomac Strategy Group, says Trump’s tariffs would be a “potentially very, very serious situation” for Canada.
“If that stated commitment that Mr. Trump has made during the campaign, to put tariffs starting at 10 percent and going up from there on, of course, if that materializes, obviously that has a very significant direct hit on the Canadian economy,” Miller said in an interview.
Miller said there is no “ironclad solution” to U.S. tariffs and that Canada will need to navigate through “a lot of trial and error” and “a lot of relationship building.” But he said that for Trump, the former real estate mogul who authored the book “The Art of the Deal,” “everything is a negotiating matter.”
If Canada were to further increase its defence spending to meet the NATO target of 2 percent of GDP, Miller said this could be “leveraged as a way for the U.S. not to put tariffs on.” Trump has been highly critical of NATO allies that fail to meet the defence spending target, and
Canada’s current spending is just 1.37 percent, projected to increase to 1.76 percent by 2029–30.
Freeland said on Nov. 8 that
Ottawa’s tariffs recently imposed on Chinese steel, aluminum, and electric vehicles will serve as a “firm foundation” for the two countries, as the United States, which had announced the
same tariffs on those products in May, will
see Canada aligned on that front.
But so far as electric vehicles themselves are concerned, the two countries could soon be diverging, as Trump has said he would remove EV mandates, unlike Canada.
Ontario Premier Ford said on Nov. 12 Canada should be ready to pursue a
bilateral trade deal with the United States if Mexico refuses to impose tariffs on Chinese goods. He alleged that Mexico allows cheap Chinese imports to be rebranded as Mexican-made and resold to Canada and the United States, undermining the spirit of the Canada-U.S.-Mexico free trade agreement (
CUSMA). The trilateral trade deal, the successor of the North American Free Trade Agreement (NAFTA), was negotiated during Trump’s first term as president.
‘Strong North America’ Argument
Livio Di Matteo, an economics professor at Lakehead University, said Trump’s “provocative” statements around trade are “simply designed to stake out a bargaining position.” He said Canada should prepare its own bargaining position and have some concessions ready to go in anticipation of Trump’s stated goals.
For example, if Trump decides to levy tariffs on Canada, Di Matteo said Ottawa should prepare a list of American goods that Canada can put tariffs on in return. During Trump’s first term, when he put tariffs on Canadian steel and aluminum, Canada responded
with retaliatory tariffs on goods from industries in key states such as Wisconsin and Pennsylvania that were critical to Trump’s 2016 election victory.
But he also says Canada should be emphasizing to the United States that it can be an important partner to enable a strong North America.
“Trump’s policies will favour an America First approach, while we should respond with the view that a strong America requires a strong North America and respond with a North America-centred strategy,” Di Matteo said.
Free Trade
Trump has vowed to invoke CUSMA’s provision stating that the deal, which entered into force in July 2020, is to undergo a formal review every six years. During his first presidency, Trump renegotiated the 24-year-old NAFTA with a
new requirement that 75 percent of auto components must come from North America—up from the previous 62.5 percent—to qualify for zero tariffs.
As part of the deal, Canada had to adjust its supply management system, which coordinates production and demand relating to dairy, chicken, eggs, and turkey products, by providing new trade privileges exclusively for the United States in the dairy market. Di Matteo said if Trump again demands more access to Canadian markets for dairy, then Canada should request policies that favour Canada’s access to American markets for Canadian products.
Two days after the U.S. election, Canada’s Senate Committee on Foreign Affairs and International Trade
amended Bill C-282 in such a way that in effect nullified the intent of the
Bloc Quebecois bill relating to supply management. The bill would have prevented Ottawa from making future concessions around Canada’s supply management system
in trade negotiations.
Senators had previously raised concerns that Bill C-282 would harm Canada’s CUSMA negotiations. They said this risk was unacceptable, especially in the context of the results of the Nov. 5 U.S. election, which they believe put Quebec’s agricultural model in jeopardy. The committee amended the bill to remove that risk and to send the bill back to the House.
A few days before the U.S. election, the Canadian
Chamber of Commerce gave its views to Global Affairs Canada on how the country can best navigate the renegotiation of CUSMA. It said Canada should prioritize ensuring continuity of the agreement and its existing key provisions while collaborating with the United States and Mexico to enhance North American economic security. Canada should also prioritize minimizing and resolving “key irritants” prior to the CUSMA review by focusing on “low hanging fruit” issues, the chamber said.
The day after the U.S. election, Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB),
said Canada must ensure it remains exempt from tariffs or other protectionist trade practices.
Maintaining Competitiveness
Trump has said he wants to lower the
corporate tax rate, and his
platform mentions “large tax cuts for workers, and no tax on tips.”
The president-elect has also tapped business magnates Elon Musk and Vivek Ramaswamy to lead a new department, called the
Department of Government Efficiency, to improve government efficiency, reduce waste, and cut excess regulation.
CFIB’s Kelly says Canada should likewise cut taxes and red tape to allow small businesses to remain competitive with the United States.
Former New Jersey
Governor Chris Christie, who ran against Trump in the race for the 2024 Republican presidential nomination and criticized him sharply, said after the election that Canada should stop seeing Trump as a threat and recognize the potential opportunities his policies can bring. “Canada stands to benefit if it plays its cards right,” Christie said in a
Nov. 6 post on the website of Toronto-based think tank C.D. Howe Institute.
“Imagine the potential for Canadian businesses if they operated in an environment with fewer barriers to growth. A thriving private sector in Canada would strengthen the economy and create more opportunities for collaboration and trade with the US,” Christie said.
He added that for Trump, the real adversary is China, not Canada. “If Trump tightens the screws on China’s unfair trade practices, it could create space for Canadian companies to flourish on a more level playing field, particularly in sectors like technology and intellectual property, where China has been a major violator,” he said.
