No tariffs for now but Trump issues executive order on trade
Canada spared tariff action on Monday but Trump remarks suggest 25% tariffs still being considered.
Around 8:00 p.m. Monday evening, while the newly inaugurated President Trump was signing executive orders and answering reporters questions, a detailed trade memo was posted on a revamped White House web site. One paragraph in particular clearly was aimed at Canada and Mexico:
d) The United States Trade Representative shall commence the public consultation process set out in section 4611(b) of title 19, United States Code, with respect to the United States-Mexico-Canada Agreement (USMCA) in preparation for the July 2026 review of the USMCA. Additionally, the United States Trade Representative, in consultation with the heads of other relevant executive departments and agencies, shall assess the impact of the USMCA on American workers, farmers, ranchers, service providers, and other businesses and make recommendations regarding the United States’ participation in the agreement. The United States Trade Representative shall also report to appropriate congressional committees on the operation of the USMCA and related matters consistent with section 4611(b) of title 19, United States Code.
At about the same time, there were numerous reports of the following Presidential statement:
We’re thinking in terms of 25 per cent on Mexico and Canada because they’re allowing vast numbers of people — Canada is a very bad abuser also — to come in and fentanyl to come in. I think we’ll do it on Feb. 1. On each”.
In any normal administration, the process laid out in the trade memo would come before the imposition of 25% tariffs on America’s neighbours.
That said, the Trump Administration is anything but normal and at 10:00 pm. Monday as I write this, it would be foolish to completely rule out 25% tariffs being imposed on a wide selection of Canadian exports to the U.S. as of February 1.
The “America First” trade memo posted late Monday evening pretty much tracks a Wall St. Journal report of January 17.
The memo requires a variety of reports and recommendations to be delivered to Trump by April 1, 2025. Topics to be covered by the reports include:
The causes of the US trade deficit;
How to establish an External Revenue Service to collect tariffs;
Unfair foreign trade practices;
The impact on American workers of the United States-Mexico-Canada Agreement (USMCA);
Currency manipulation by US trade partners;
The reciprocity of existing trade agreements;
Antidumping and countervailing duty (AD/CVD) policies;
Countries for bilateral or sectoral trade negotiations;
Discriminatory extraterritorial taxes;
A variety trade issues related to China including the reciprocity of China’s treatment of intellectual property rights;
The impact of foreign subsidies on procurement; and
Migration and fentanyl flows from Canada, Mexico, and China.
Given that there was no formal announcement Monday of tariffs being imposed on Canada, there were also no retaliatory measures announced by the Trudeau government. That said, the Globe has reported that if and when the U.S. acts, the government would announce a rapid consultation period – possibly two weeks – on a first round of tariffs that would cover approximately $37-billion of U.S. imports, with implementation to follow immediately after.
These would be the least painful counter-tariffs and would be focused on the areas that would do the least economic damage to Canadians.
Depending on how hefty initial U.S. tariffs on Canada are, Mr. Trudeau may also announce consultations on tariffs covering another $110-billion or so of American goods.
While Canada may have escaped the imposition of tariffs for the moment, it is clear that the era free trade is over and a new, more protectionist trade era has begun.
My guess is that Trump is very unlikely to impose tariffs on U.S. imports of Canadian oil as that would hammer his supporters in the U.S. Midwest. The same could be said of potash used in fertilizer by U.S. agricultural interests.
While Canadian oil and potash exports may be safe, the same cannot be said of Canadian manufactured goods, most of which originate in central Canada. The auto parts sector, in particular, is likely to get hit pretty hard, if not on February 1, some time in the next few months.
Canada must make short, medium and long-term changes to its trade policies. That means an assertive regime of counter-tariffs in the short run and a diversification of trade in the long run.
The leading candidates for the Liberal leadership are sophisticated economic thinkers and over the next six weeks they must make clear how they plan to position Canada in this new, more protectionist, trade era.
And the guy currently running 25% ahead in the polls will hopefully surprise us and say something useful for a change.