Talk of Canadian Retaliatory Tariffs on US Growing: Here’s How it Worked Last Time

Prime Minister Justin Trudeau meets then-U.S. President Donald Trump at Winfield House in London on Dec. 3, 2019. The Canadian Press/Sean Kilpatrick

News Analysis

The inauguration of U.S. President-elect Donald Trump is inching closer and there are no indications he’s satisfied with Canada’s response to his threat of imposing a broad 25 percent tariff on Canadian goods.

Quite the opposite, actually. Trump repeated this week he would impose “very serious” and “substantial” tariffs on Canada, along with threatening to use “economic force” to merge Canada with the United States.

As the Jan. 20 deadline approaches, senior officials in the Canadian government have started speaking anonymously to the media about Canada’s retaliation plans.

One official told The Canadian Press that U.S. products such as steel, ceramics, and plastics could be slapped with tariffs, but a decision on retaliatory measures has yet to be made. The first ministers are set to meet in Ottawa next week to discuss potential retaliation.

Trump has linked his tariff threat to concerns about illegal migration and drug smuggling at the Canadian border. Ottawa responded by preparing a $1.3 billion border security plan.

Canadian officials are also using different channels outside state-to-state diplomacy to stave off the tariff threat. Prime Minister Justin Trudeau was in Washington on Jan. 9 to attend former U.S. president Jimmy Carter’s funeral, while also having scheduled meetings with business leaders.

Trump imposed tariffs on Canadian steel and aluminum during his first term, minus the rhetoric about making Canada the 51st U.S. state.

In justifying the tariffs in 2018, Trump said the importation of those products into the U.S. in “such quantities” would “weaken our internal economy and thereby threaten to impair the national security.”

Trump’s “America first” agenda includes economic nationalism to rebuild the U.S. industrial base.

After the U.S. tariffs came into force in June 2018, Canada imposed countermeasures starting in July of that year.

A long list of U.S. steel and aluminum products were slapped with a 25 and 10 percent surtax, respectively.

Another list of products including food, household items, and appliances were also targeted by a 10 percent tariff.

Examples of food items included yogourt, coffee, maple syrup, pizza, orange juice, ketchup, and mayonnaise. Certain types of whiskies also made the list.

For household items, the countermeasures included tableware and kitchenware, toilet paper, and toilet articles. Stoves and ranges, refrigerators, dishwashers, and lawn mowers were also targeted.

Canada and the U.S. came to an agreement in May 2019 to lift their respective measures. The countries pledged to prevent the importation of steel and aluminum that is “unfairly subsidized” or sold at dumped prices, and to prevent the transshipment of steel and aluminum made outside Canada or the U.S. to the other country.

While tariffs were in force, they had a sizable impact on trade.

Steel exports to the U.S. declined by more than 37 percent immediately following the tariffs coming into force, Statistics Canada said.

“While monthly export movements varied for the remainder of the tariff period, the net effect was a decline, as the value of exports in May 2019 was at its lowest level in almost 10 years,” said StatCan.

The duties collected by Canada from the surtax during the period also rose significantly, from a monthly average of nearly $47 million in 2017 to nearly $190 million after the imposition of tariffs.

The U.S. also saw a sharp rise in the amounts of duties it collected on Canadian steel and aluminium. From more than $24 million per month in 2017, they rose to an average of $205 per month while tariffs were being imposed.

Canada and the U.S. share the longest undefended border and nearly $3.6 billion in goods and services cross it each day.

The Canadian Press contributed to this report.