By Sabine El-Chidiac and Elizabeth Hicks
While tariff threats have been a roller coaster ride of will he or won’t he, reports indicate that President Donald Trump’s plan to tack on a 25% tariff on Canada is on track to becoming a reality on February 1. Given the harm tariffs have on Canadians and Americans alike, the best course of action would be to eliminate tariffs as a policy option and focus on working out the issues the United States has with Canada diplomatically. Not only would tariffs from the United States be devastating to both American and Canadian economies, but the proposed retaliations by Canada would further hurt the pocketbooks of the citizens of both countries.
Ontario Premier Doug Ford has been very clear when it comes to Trump’s proposed tariffs: impose tariffs on Ontario, and Ontario could cut off electricity to 1.5 million homes in New York, Michigan, and Minnesota. The federal government also said they would respond with the “single largest trade blow the U.S. economy has ever endured” if Trump follows through with his plan for tariffs, and a future government will likely feel compelled to do the same due to the harsh economic implications tariffs will have on Canada. Rather than allow tariffs to be imposed at any point, the U.S. and Canada must find an off-ramp to protect consumers on both sides of the border. Canada needs a new approach based on political reality and the unique economic interests of both parties in this dispute.
Tariffs are simply another word for taxes, and imposing such taxes on Canada will affect Canadians’ day-to-day lives even more than the cost-of-living crisis already has. Canadian economist Trevor Tombe predicts that if the U.S. follows through on tariffs and Canada retaliates, the Canadian household cost would be $1,900 CAD per person annually. In the U.S., that impact would be nearly $1,700 CAD per person. This is one of the more conservative estimates.
Tariff showdowns tend to be more about a battle of wills and less about positive economic outcomes.
The 1930 U.S. Smoot-Hawley Tariff Act resulted in world trade falling by 66% and U.S. exports and imports crashing by about two-thirds, prolonging the Great Depression. More recently, the 2018 steel and aluminum tariffs imposed by Donald Trump resulted in skyrocketing manufacturing costs for U.S. industries. The ongoing softwood lumber tariffs imposed on and off by the United States have significantly raised American housing prices.
In response to the Smoot-Hawley tariffs, Canada retaliated and imposed harsh tariffs on the United States under Prime Minister R.B. Bennett, sending Canada’s export markets into a spiral and sparking a Canadian economic depression. A very similar story has predictably played out over the 2018 steel and aluminum tariffs and again with Canadian retaliatory tariffs in the softwood lumber feud.
Canada is the United States’ second largest trading partner, with imports from Canada to the U.S. totaling almost $344 billion in 2024 through October. Canada and the U.S. are neighbours and long–time allies, and the integration of our supply chains has resulted in lower prices for consumers in both the US and Canada while increasing the global competitiveness of both countries.
Premier Ford has been promoting a “Fortress Am-Can” program that would have the US and Canada working as a team on various energy-related policy issues, and there has been rhetoric from the Conservative party leader Pierre Poilievre about striking a “great deal” with Donald Trump by increasing Canada’s energy exports to the U.S. This direction can be workable answers to the tariff standoff, and could extend this pause to a permanent reversal on tariff policy.
Many Canadian consumers can barely afford the necessities of life such as groceries, clothing, and housing. Adding tariffs and retaliations to the mix may be the last straw that leads to Canada’s next great depression.