Battle of the Borders: How Canada can outsmart Trump in the trade war

Donald Trump hit the pause button on a sweeping 25% tariff on all Canadian imports just days before it was supposed to take effect.

But even though it's on hold, the threat of that tariff still hangs over everyone's heads and could turn into a big issue for Ottawa, especially with recent developments.

On February 10th, Trump revealed he was placing a 25% tariff on all imported steel and aluminum products imported from across the world, which would take effect starting on March 12th according to Global News. He also didn’t provide a carveout for Canada. 

Trump’s most recent tariff action was another signal that Canada could still see a 25% blanket tariff on all the goods it exports to the United States, which means Canada will still need to prepare and find a way to fight back. 

If it comes to a trade war with Trump, Canada will be in a bad position. However, one expert argued that Ottawa could win such a trade war but it would need to go after the things that would hurt the United States the most. 

According to Stuart Trew, a researcher with the Canadian Centre for Policy Alternatives, if Canada wants to respond to Trump’s tariff then the country may need to retaliate with more than just its own tariffs on U.S. goods. But what did he propose? 

In a January 17th article, Trew said that Canada can not reasonably push past the heavy-handed response Ottawa has already planned to counter Trump’s tariff threat because of the negative impacts any further action would have on Canada's economy. 

A blanket 25% retaliation would see increasing consumer prices and worsening inflation as well as compounding costs for businesses that would chase away private investment in the economy. Interestingly, this was not the tactic Justin Trudeau and his government to retaliate against Trump's 25% tariffs when he announced them.  

Retaliatory tariffs would come in waves. According to a recent report from The Globe and Mail, Ottawa would begin with tariffs on roughly $37 billion worth of U.S. imports, which would be followed by a second wave of $110 billion in imports at a future date. 

What Trudeau did when Trump announced his tariffs was quite close to what the Globe and Mail had reported. Canada responded to Trump with a 25% tariff targeting $30 billion in goods immediately and another $125 billion in goods set to take effect 21 days later according to BBC News.

Trudeau wisely avoided the trap of a Canadian 25% tariff on all imported US goods, something Trews would have liked to agree with. In his article, Trew proposed Canada should implement retaliatory tariffs, as well as export taxes on critical resources and energy products. 

Trew suggested that what The Globe and Mail reported might be “as far as Canada is reasonably able to go in a tariff-based retaliation alone” and argued that adding export taxes on key goods that were hard to replace could squeeze Trump and the U.S. 

“Export taxes on U.S. imports of essential resources and industrial inputs would allow trade to continue through a trade war with the U.S., preserving Canadian jobs,” Trew explained. The one-two punch of targeted tariffs and export taxes could be a winning strategy. 

“Contrary to what Trump said in Mar-a-Lago, the U.S. economy currently depends on many products from Canada that would be difficult for U.S. companies to source elsewhere,” Trew wrote, noting this would create leverage for Canada in its negotiations with Trump. 

Export taxes are not the same as import duties (tariffs of other surtaxes) Trew explained. Tariffs are paid by the company importing a product from outside of a country while export taxes are leived on goods exported from countries and often used by nations to achieve various economic, environmental. or national security goals. 

“Most often, export taxes are a means for securing domestic supplies of a good or commodity that is in high demand on the global market. However, they can also be a source of government revenues,” Trew explained. 

On the shortlist of hard-to-replace commodities Canada could impose import taxes on includes things like Uranium, 27% of which is sourced from Canada according to the latest data from the U.S. Energy Information Administration. 

Oil is another commodity Ottawa could earmark. Roughly 60% of U.S. crude oil comes from Canada and over 100 refineries in the United States have been specifically too tied to process the type of oil that American oil companies import from Canada. 

Moreover, according to Trew, there are “no ready alternatives for this product outside of Mexico (which will presumably face similar tariffs to Canada) or Venezuela, which would be a non-starter for most Republicans and Democrats alike.”

The U.S. imports 70% of its unwrought and unalloyed aluminum from Canada. This makes the metal another great option for export taxes since companies in the United States need aluminum and can’t source the all-too-important metal elsewhere easily.

As of February 17th, a 25% on all Canadian aluminum imports to the US is set to take effect on March 12th if nothing changes before that date

“Even a modest export tax on Canadian aluminum would send ripples through U.S. supply chains in transportation and construction reminding them of the interdependence of the North American market,” Trew explained. So adding an export tax on top of a tariff could probably now do serious damage to the American economy. 

The final option is potash, an essential component of fertilizer. Canadian potash makes up about 90% of U.S. potash, making the country’s Canadian source a key cog in America’s agricultural sector.

“This supply is so important for the U.S. agricultural sector—and alternate sources Russia and Belarus so politically poisonous—that it is likely Trump would exclude potash from potential tariffs on Canadian imports,” Trew noted. 

Whether or not Ottawa will impose any export tariffs as a means to pressure the Trump administration in any future trade war has yet to be seen, but it is interesting to see that Canada may not be entirely helpless if it has to go to economic war with its biggest trade partners. 

“The Trump administration needs to know there will be no benefit to the U.S. from future economic coercion against its North American allies,” Trew wrote. “Export taxes on energy would show Trump we are serious about defending our sovereignty.”

Never miss a story! Click here to follow The Daily Digest.