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Trump doubles down on Canada tariff threat

Prime Minister Trudeau and the premiers have turned their focus to the pressing issue of interprovincial trade as a potential shield for the Canadian economy against looming threats from the United States. This strategic discussion, as outlined in a press release from the Prime Minister’s Office, comes in response to Trump’s announcement of a potential 25 percent broad tariff on Canadian goods, slated to begin as early as February 1. The renewed threat has created a sense of urgency across Canada political class, igniting debates on countermeasures and collaborative efforts to safeguard economic stability.

              The topic featured prominently in a virtual meeting chaired by Trudeau on Wednesday morning, marking an extension of discussions from last week’s first ministers’ meeting on Canada’s approach to the looming American tariffs. According to a senior government source, the group has decided to convene an urgent meeting next week dedicated to internal trade, with the aim of advancing trade opportunities within Canada and repealing some internal trade barriers amid the growing U.S. challenge. While it remains unclear whether Trudeau will attend this meeting given his diminishing status, the new Internal Trade Minister, Anita Anand, is expected to play a key role in any negotiations.

Diverging Views Among Premiers

              The discussions on how Canada should respond to Trump’s tariff threats revealed divisions among provincial leaders. While there was initial agreement on considering all options, including the possibility of imposing tariffs on energy products, this consensus appears to have weakened. Saskatchewan Premier Scott Moe expressed strong opposition to export tariffs on Canadian goods, arguing that such measures could harm domestic producers. He noted that this stance partly aligns with Alberta Premier Danielle Smith’s position, as she had previously declined to endorse a communique from last week’s meeting due to her refusal to support energy export tariffs. Interestingly, Premier Smith was successfully in securing a meeting with the President-elect at Mar-a-Lago days before her was officially sworn in on January 20th. She has been unflinching in that her position is to protect Alberta’s interests without reservation.

              Smith’s dissent has placed her at odds with most premiers and Trudeau, who reiterated his commitment to dollar-for-dollar retaliatory tariffs during a Liberal cabinet retreat in Montebello, Quebec. “It’s something that we are absolutely going to be looking at if that is how they move forward,” Trudeau stated. However, Moe has countered that Saskatchewan favors more targeted tariff measures, emphasizing their potential to mitigate harm to Canadians and North Americans alike. Quebec Premier François Legault supported this viewpoint, suggesting that retaliation could involve measures like barring U.S. companies from bidding on Quebec government contracts, drawing inspiration from the U.S. Buy America Act.

Premier Ford, who is currently chair of the Council of the Federation, has advocated for a unified “Team Canada” approach to address the tariff threats. Ford emphasized the importance of national solidarity in protecting Canadian jobs, particularly in Ontario’s industrial and manufacturing sectors.

Federal Leaders Join the Debate       

              On the federal stage, opposition leaders weighed in with their perspectives. Pierre Poilievre criticized the Trudeau government’s economic management, suggesting that Canada lacks leverage in its negotiations with the U.S. Poilievre advocated for a free-trade strategy centered on promoting Canadian energy exports, framing it as a mutually beneficial arrangement for both nations. Jagmeet Singh adopted a more combative stance, labeling Trump a “bully” and proposing that Canada halt its critical mineral exports to the U.S. Singh argued that such a move would directly impact high-profile American industries, including Elon Musk’s Tesla operations, which rely on Canadian-sourced materials. Discussion among premiers also touched on the significance of maintaining open lines of communication with American officials, underscoring the delicate nature of this economic standoff.

Border Security and Trade Policy in Focus

              The federal government’s broader strategy includes bolstering border security, with Ottawa’s $1.3 billion border plan emerging as a key topic during Wednesday’s discussions. This plan aims to address concerns about illegal drug and human trafficking across the northern border, issues frequently cited by Trump as justifications for his tariff threats. Trump has repeatedly accused Canada of failing to prevent the flow of fentanyl and unauthorized migrants into the U.S., although Canadian officials have pushed back against these claims. Ambassador Kirsten Hillman, Canada’s envoy to Washington, has refuted Trump’s rhetoric, highlighting Canada’s commitment to border security and cooperation with American authorities. U.S. Customs and Border Protection data provides context for these allegations. While the agency seized over 5,000 kilograms of illegal drugs at the Canadian border last fiscal year, including 19.5 kilograms of fentanyl, these figures are dwarfed by the quantities intercepted at the U.S.-Mexico border. Additionally, migrant encounters at the northern border have risen to 23,731 in the past year, though they remain a fraction of the 1.5 million recorded at the southern border.

Trump’s Broader Trade Agenda

              Trump’s tariff threats have sparked speculation about his broader trade agenda, particularly regarding the Canada-United States-Mexico Agreement (CUSMA), which replaced NAFTA during his first term. While Trump has denied that his actions are tied to a renegotiation of the agreement, sources cited by The Wall Street Journal suggest otherwise. The president recently signed an executive order directing a review of CUSMA ahead of its 2026 renewal, with recommendations due by April 1. Trump has previously criticized loopholes in the agreement, alleging that they enable Chinese goods to enter the North American auto market via Mexico.

 

Tariff Impacts

              For Canadian leaders, the challenge lies in responding in a way that defends national interests while maintaining economic ties with the U.S. The federal government has a $62 billion deficit, so it is in a weak position to provide added stimulus to the national economy. As the February 1 deadline looms, Canada’s response to Trump’s tariff threats will undoubtedly shape the nation’s economic trajectory and its relationship with the U.S. The upcoming meeting on internal trade will be a critical moment for provincial leaders to demonstrate unity and resolve in the face of external pressures. Regardless of the renewed sentiment toward greater national unity, internal trade barriers are an incredibly complex and costly issue which would be very difficult to resolve or make headway on in the immediate short term. The benefits of a breakthrough on internal trade would take a while to be felt. Check out Tembo’s latest newsletter for more insight into what the potential impacts of 25% tariffs to the Canadian economy would be.