After the US raised tariffs to 35% on Canadian goods, Canada faces an economic and political crisis. This marks a stark divergence between Washington’s approach in dealing with trade relationships with North American neighbours.
The White House has attributed the increased trade sanctions against Canada to the fentanyl-trafficking in the country and Canada’s previous retaliatory measures.
The escalation of tariffs marks a break with North American unity
The United States-Mexico-Canada Agreement, or USMCA, has treated Canada and Mexico similarly for many years. Both countries are subject to the same 25% tariff base but enjoy significant exemptions.
On Thursday, the Trump Administration imposed a tariff of 35% on Canadian products but spared Mexico.
The White House claims that Canada’s high tariff is due to Canada’s alleged involvement in the fentanyl trade and counter-tariffs.
This statement was criticized, as US Customs and Border Protection shows Mexico to be a larger source for fentanyl.
Mark Carney, the Prime Minister’s Office is in a tough position because of these new tariffs.
Carney, who was elected on the promise to stand firm against US aggression in trade, is now under pressure to act.
Prior retaliatory actions appear to worsen the situation rather than prevent further escalation.
Canada’s restricted scope of retaliation
Canada had taken countermeasures against the US under Justin Trudeau, including a 25 percent levy and matching US duties on automobiles, steel and aluminum.
Unfortunately, this has not prevented further growth.
Carney’s approach has changed since then. He is now taking a measured approach and has diluted Canada’s anti-tariffs by granting exemptions for manufacturing inputs and public health products, as well as vehicles manufactured in Canadian factories, such GM or Honda.
David Collins, an expert at City St George’s University, argues that Carney’s lack of retaliation reflects a reality in economics: often retaliation hurts both the country imposing it and the targeted nation.
According to economists at the Bank of Nova Scotia, the Canadian government is most concerned about preserving the USMCA carving-out which reduces the US effective tariff rate for Canadian goods by approximately 6.3%.
The strategic intersection of diplomacy and retaliation
Although Canadian officials including Dominic LeBlanc (Trade Minister) continue to discuss with US counterparts there has been no resolution.
The statement issued by Carney’s Office expressed its disappointment, but did not mention any further retaliation.
Mexico, on the other hand, has a different approach. It does not use counter-tariffs at all. This appears to be what earned Mexico better treatment.
The Mexican president Claudia Sheinbaum maintains high approval ratings, and has stressed mutual respect when dealing with Trump.
The long-term impact on the Canadian economy is still a concern for economists.
Tariffs specific to steel, aluminium, and automobiles could weigh down on the growth, even though USMCA offers some protection.
Avery Shenfeld, a CIBC analyst, warned that Canada’s apparent immunity could be exaggerated and the threat of more disruptions may deter investors and erode confidence in business.
Canada, which is navigating a changing trade environment shaped by the volatile US policies while trade negotiations are ongoing with no agreement yet in sight must strike a balance between political expectations and economic pragmatism.
As new developments unfold, this post Canada considers retaliation cost against US tariffs could be updated.
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