The Agenda with Steve Paikin (Audio) - Should Canada Retaliate Against Trump's Tariffs?

Episode Date: April 9, 2025

Trump has launched a trade war against almost the entire world. Some countries have responded with retaliatory tariffs, including China. Others like Australia have not. What should Canada do? We've already slapped tariffs on American products such as Kentucky Bourbon and Florida Orange Juice. And we've responded in kind to Trump's auto tariffs. But is eye for an eye good economic policy? Or is it the only language a bully understands? See omnystudio.com/listener for privacy information.

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make a first time donation and continue to discover your 2 Point TDO. Since President Trump launched his trade war against most of the world, some countries have responded with retaliatory tariffs. Others have not. What should Canada do? We've already slapped tariffs on American products such as Kentucky bourbon and Florida orange juice, and we've responded in kind to Trump's auto tariffs. But is eye for an eye good economic policy? Is it the only language a bully understands? Let's ask. In the nation's capital, Jennifer Robson, associate professor of political management at Carleton University and McConnell visiting professor in the Max Bell School of Public Policy

at McGill University. Also in Ottawa, Ian Lee, associate professor in the Sprott School of Business at Carleton University. And with us here in studio, Drew Fagan, professor in the Sprott School of Business at Carleton University. And with us here in studio, Drew Fagan, Professor at the Munk School of Global Affairs and Public Policy at U of T and a Senior Advisor at the Macmillan Vantage Policy Group. Drew, good to have you here and to Jennifer and Ian and Points Beyond, lovely to have you on the program as well. We're going to start by just doing a little background here to get us to where we are today in terms of tariffs.

So Sheldon, if you wouldn't mind bringing this graphic up, here we go. Last week, President Trump announced a 25% tariff on all imported vehicles with a temporary reprieve for parts covered under CUSMA, the Canada-US-Mexico agreement. This is in addition to a 25% tariff on all steel and aluminum, a blanket 25% on all Canadian goods

not covered under KUSMA, and a 10% tariff on energy and potash. Now, according to a recent Leger poll, 70% of Canadians say they are in favor of a dollar for dollar response to US tariffs tariffs and all the major parties in this federal election support some form of retaliatory tariffs. So let's get into this. Jennifer, to you first. Generally speaking, do you think it's in Canada's best interests to retaliate with counter tariffs?

Generally speaking, the economics would tell you, no, we should not impose tariffs, but that's not the situation we find ourselves in. As you pointed out, we have retaliated against the unjustified measures that Donald Trump has put in place already. There are three good reasons for it that are probably not textbook economics. First is to keep cohesion here at home. That's absolutely essential in terms of the transitions that we're facing ahead. The next reason is to try and move

some of the views of Americans, or at least prevent cohesion behind the craziness that is Donald Trump. And then the other thing, too, is remember, we can't give up what we aren't already doing. So some of those tariffs were imposed on Canada because of supposed fentanyl. We're not exporting fentanyl to the United States. So in this kind of new arrangement with the US,

we have to have some kind of tribute to give up. And so for that reason, we want to have tariffs to be able to give up at a later stage. Ian, what about you? Counter tariffs good or bad? They're the worst possible solution that we could adopt right now. We have known since Adam Smith, David Ricardo, 250 years ago,

right down to, oh, 10 days ago in Toronto when Governor Macklem gave an excellent speech summarizing the research of the Bank of Canada economists. And they found absolutely not one single redeeming argument in favour of tariffs. They increased prices to ordinary Canadians. They are going to drive up inflation. It's going to make life more affordable. And in the research by Professor Tom at Calgary, University of Calgary, he showed that the impact on the US is trivial. And the logic is arithmetic. When you take the total cost or estimated amount of the Canadian retaliatory tariffs

and simply divide by the 30 trillion GDP, you probably have to go to seven or eight or nine decimal points to the right of the decimal point before you hit a significant digit other than zero. In other words, the impact of a couple of hundred billion dollars on a 30 trillion dollar economy is similar to a multimillionaire finding a loony on the sidewalk and thinking they just became rich.

The impact is negligible. And so it's not going to... We'll get to Trevor Toome's analysis in just a second here, because I'm glad you raised him. We are going to come back to him. First, let me get Drew on this. What's your view? Well, I agree with Jennifer and I agree with Ian.

How's that? But there's also politics to be considered. Our situation with the United States, we're not a small economy. We're a medium-sized economy, ninth biggest in the world, but we are the biggest economy dependent on one other big player, the super heavyweight. And we're more dependent on them than the United States than they are on us. In those circumstances, I think in particular, as Ian points out, you know, we're not going to hurt them as much with retaliatory tariffs as we might hurt ourselves.

Nevertheless, we're in the middle of an election and I think credibility states for those political parties, and let's talk about reality, that there has to be some sort of retaliation in part because Canadians expect it. We're actually the outlier to go back to Ian's point about pure economics. Of the 20 major trading partners with the United States, only two have retaliated. China, which could easily escalate, and us. And we did it in such a way that we worked hard to ensure that they didn't counter retaliate. And we'll see how that happens, where that goes going forward.

I mean, Jennifer, let's touch on the political angle here. In the middle of an election campaign, can any self-respecting leader of a major political party not threaten the United States with countervailing tariffs and expect to win given that 70% of the Canadian public wants them? No, they can't. They have to impose some sort of countermeasure. And look, if countermeasures, counter tariffs were the only thing that Canada was doing, then we might worry. But don't forget there's also been a huge amount of diplomatic efforts, there's been a massive public advertising campaign in the States. So I think we need to see these counter tariffs

as part of a broader strategy, again, where there are economic goals to consider, but there are also political goals. And frankly, we're not dealing necessarily with a standard rational actor in the Trump administration. I would point out, it's really interesting, I think, that we have managed to avoid the so-called liberation round of retaliatory measures from the US. And I think that's worth paying attention to. Ian, as promised, we're going to come back to Trevor Toome, the economist from out west who calculated, here's his numbers here. A 25% blanket tariff, he says, would have 40 times the impact on Canada versus the same

tariff levied by Canada on the United States, as you indicated, basically a pimple on the back of an elephant. Having said that, should we be basing our response on spreadsheets alone? It's not on spreadsheets alone. It comes down to, I guess I'm going to quote Kissinger, you know, we have to be strategic in this. Cutting off our nose to spite our face, to use a famous cliche, is not prudent. You know, self-harm, I could stand by the wall right now and bang my head on the wall repeatedly and give myself a concussion and say, there, I'm punching Donald Trump in the face.

But it's not achieving anything. It's not achieving our end, our strategic interest, which is to have full and complete access to the U.S. economy without any tariffs whatsoever. So there's vastly more efficacious routes to go. And we're going to talk about that, I realize. And the most obvious one is getting back, getting to the negotiating table to negotiate a new comprehensive agreement. That to me is vastly more efficacious and prudent than self-harm that's going to cause great damage to ordinary Canadians in terms of their affordability, which every politician has said is one of the major issues in this election.

So why would we want to double down and make life even more unaffordable? Because, Drew, we're in the middle of an election campaign and there's no option? Is that the answer? And I'm not sure we're doubling down as much as taking some action, tit for tat, with what happened last week, knowing, as Jennifer said, that we kind of got off easy last week. Now, got off easy. Everything is illegitimate here. We're dealing with an extraordinary situation, but we're trying to find a balance. To Ian's point, where we want to get to is a negotiation after the election.

And the only way the Canadian public is going to accept that, and both parties appear to want to go down that road after the discussion between Prime Minister, and he was acting as Prime Minister 10 days ago, Carney and Trump, is if we actually show a little bit of backbone, there's much backbone as possible under the circumstances right now and hopefully we can get back to that negotiation. But a lot of damage has been done and Canadians know that. Canadians are smart on this because you noted the poll about they want retaliation. But there was also a poll in the morning papers just today saying in effect they fear the impact of that retaliation. We don't want to get into a spiral like China may be facing. We're trying to walk a fine line.

We find that we have allies in strange places in the United States. And Jennifer, I'll just point to Mitch McConnell, the former Senate majority leader. He's a senator from Kentucky. He's come out against Trump, despite being a Republican. He's come out against the Tariff War on Canada. He obviously doesn't like the tariffs on Kentucky Bourbon, which he would care a lot about being a Kentuckian. What do you think we should take away from all of that?

What do you think we should take away from all of that? Look, the US Congress could act, if they got themselves together, to withdraw Trump's powers to enact these sorts of tariffs. There are some signs, I think some hopeful signs in terms of Republican members in the Senate, House of Representatives, a whole other ballgame. But the point here is that if you can change some of the permission structure for people to disagree, right, then more voices can be heard and then we prevent that coherence behind Trump's insane, I don't even know if it's a plan. Look, I want to just agree with some of what my fellow panelists have said in terms of

Canada is too small to extract real harm here, but we're always considered to be like the mouse beside the elephant. But when the elephant is very busy giving itself a rash, that tells us something about where to go and sort of nibble and scratch away. So I think the Mitch McConnells of the world, not to mention even the former vice president of the United States, has come out starting to voice some support for Canada and for dropping these tariffs and certainly for criticizing the Trump policy agenda. Well, let me ask Ian about that expression you just used, the permission structure, because

the United States, I suspect quite famously at the moment, is not known for, particularly in the Republican Party, for giving free speech rights to people to disagree with the president. You do that at your peril. So Ian, how much permission structure do you see down there right now for people to oppose Trump on tariffs, particularly if they're from his party? Enormous amounts. I believe, and I've been there many times, including two sabbaticals, that there are enormous checks and balances

in the United States, and I don't just mean that going to the courts. I mean, there's op-eds, there's protests that we're seeing right now. My goodness, the billionaires are coming out and day by day and attacking Trump. This is a very fluid and very dynamic situation. The markets are already coming back

because they think he's going to start to negotiate deals. And so what I'm really arguing is that we shouldn't be acting precipitously just because of emotion, because we want to punch Donald Trump in the face and, you know, to make us feel better. This situation is moving very, very quickly. The European Union already came out and said, look, we're willing to do a deal where we get rid of terrorists on both sides.

Most of the countries, the allies have gone the other road. Australia is not doing retaliation. So my point is that there are checks and balances in the States. We're seeing it. The markets are another check and balance. The markets were tanking. So I think that there's a lot of pressure building up on Trump that is going to cause him to back down.

He'll never admit he's backing down. Of course, he'll be declaring victory every moment of the day, of the way. But I think that the checks and balances are slowly coming into play and they're going to work on the Trump White House and Trump to start to compromise and do deals. We're doing, Carney, Prime Minister Carney has announced we're going to be negotiating right after the election. And so, and 50 countries came out in the last 24 hours saying that they're seeking deals with the way bilateral deals to respond.

So this crisis is moving very quickly. And I think we're going to see changes very quickly that don't warrant such an extraordinary policy response of tit-for-tat retaliatory tariffs that are so destructive on us. Well, let me try that with Drew. Is it possible to create a regimen of tariffs that have a disproportionate influence on the United States and don't hurt us as much as say what's transpired so far. That's always been the strategic objective.

We're, you know, as Jennifer knows, we're not a mouse. We're, again, middleweight. And we're substantial. But against the United States, there's a great asymmetry. So when we deal with the United States in circumstances like that, in the 60s, in the 80s, most recently during the original Kuzma negotiation in 2018, we had to be strategic.

We had to be united. And frankly, we had to be smarter than they were. So that's why the tariffs in 2018 on Bourbon. Move McConnell. Now, McConnell isn't running again, so we made some progress. But again, this is a global fight. It started as a bilateral or trilateral fight.

And if anything, those members of the trilateral community, Mexico and Canada got off easy last week. But we are specially situated. It's relatively easy for the EU to say retaliate. That's about 3% of their GDP. The US market is 22% of our GDP. And by the way, it's a lot smaller than it was in 2000. Peak NAFTA was a generation ago. Since then, we've diversifying, and actually, the domestic market is stronger. So we have to be smarter.

And for the most part, we have been. What we did on autos was in part necessary, because that is the original integrated industry. And for Trump to say it's an American industry, as opposed to a continental industry, which it has been for 50 years, was very telling. Autopact, right? Go back all the way to the 60s.

And made, you know, was the first step towards a full free trade agreement. Okay, Jennifer, you know, Canadians may not understand all of the nuances of the economic orders at play here, but they sure get the notion of a school year bully trying to push somebody around. So how important just from that standpoint and or strategically, is it important to show strength back to a guy who wants to kick sand in your face and knock you to the ground? Yeah. And especially a fairly erratic bully like Donald Trump.

I want to come back to the negotiation that is going to be taking place after the election for a renewed KUSMA deal with the US. Whoever forms government has said that that's their plan. And so if you take a look at what actually the United States is expecting from us in terms of where they see the non-tariff irritants in the relationship, there are some new changes in there that are going to be problems for us at the negotiating table. Some of them are the usual third rails, supply management, for example, television broadcasting

licensing issues. But they've added in, they've thrown in some new regional sensitivities. So for example, they're now listing Quebec's language laws as a non-tariff barrier. They're complaining about Alberta's power deal with Montana. So again, this is going to be a difficult negotiation for Canada. And by preparing ourselves in advance, by having some shows of force, we put ourselves in a stronger negotiating position because Trump is looking basically to extract tributes. It's pretty clear. He likes to be in the position of having people come and beg and offer to give up things.

We can't give up what we don't have. But Drew, as we consider where we are in this drama, at what point are we near the beginning, near the middle, near the end, you say, at least I heard you make the reference to, we're at the pots and pans stage of COVID-19 in this drama. What does that mean? So everybody is sounding a little heroic right now,

unlike during the pots and pans stage. So we're going to get through this. We've seen this before. We're going to build, build, build east-west ties. And that's all for the good. We're going to diversify. We're going to look away from the United States. There is a difference, by the way,

between the liberals and conservatives in the campaign with regard to how to away from the United States. There is a difference, by the way, between the liberals and conservatives in the campaign with regard to how to deal with the United States. Mark Carney seems to want, at least rhetorically, to shift. Poliev, the conservatives, kind of want to just get back to the table. It may well be that if the liberals win, they end up having that negotiation. But it's going to be, as says an extremely difficult one and the impact if this continues on the Canadian economy will be more substantial than probably for any economy with the possible exception of Mexico and so if it continues you could

have a real economic dip we're starting to see that. Southern Ontario is dependent on autos to a sizable extent outside the GTHA, and there is already being an impact. So we potentially will really feel it. So the heroic stage deals with talking about all the projects we couldn't get done over the last 20 years. Now we're going to do them.

But I would note that right off the bat, what's taken off the table is supply management, which most Canadians and most policy, all policy analysts would say is inimical to us for political reasons. So it may be that you start a negotiation with that, but it probably is in Canada's best interests if at the end you make, give the Americans some degree of win because Trump is particularly focused on that.

He needs a win. Yeah, that's the thing. Okay, Ian, let's look at it from this angle here. We've seen 70% support among Canadians for punching back. We've heard Drew describe that we feel we need to stand up to bully. Jennifer says the same thing. So we're feeling, you know, we're really feeling our oats right now about pushing back against Trump.

How long does that last? You mean the 70% support? Correct. How long can we anticipate that kind of bullish support for punching back to last once the reality of the prices kick in. I've never found the argument compelling I mean if one believes in leadership rather than followership it's the role of leaders on unpopular on on issues that are in the national interest to show leadership even if public opinion isn't there. Roosevelt showed that all through the

late 30s and into the early 40s. Public opinion was overwhelmingly against becoming involved in the Second World War. And he was working actively against public opinion because he knew it was the right thing to do. So leaders can go against public opinion. It requires political capital. There's no question about it. But to your question, I think that that support is that 70% support, I think is very soft. If when people start losing their jobs and becoming unemployed, or they have a friend or a cousin or a family member that loses their job, or they see prices going up a five or six or eight or ten percent I think that's when it's going to hit home that this isn't just a game of rhetoric this could hurt me or my family and so I think that that support would decline

very quickly if indeed some the cost of the the tariffs kicks in and becomes transparent quickly which I think it will the longer they stay in in in effect and so I think that that that that support will decline. Jennifer, I wonder if our decision makers have some understanding and agreement with Ian Lee on this in as much as they are talking about lots of tax holidays on businesses, they are talking about improvements to employment insurance

as long as the current crisis persists. Do we have the potential, given the consensus around social programs in this country, insurance as long as the current crisis persists. Do we have the potential, given the consensus around social programs in this country, do we have the potential to ride this out longer than perhaps they do in the United States? I think actually our social programs, our safety net, is a huge asset in this. It does give us more time. It gives us ways of supporting people through these difficult transitions.

Remember, the United States, the relationship with the United States, even if we get back to a zero tariff relationship, that relationship has now been damaged. There's an awful lot of erratic behavior from the states. That's going to continue to affect us here in Canada for years to come. Even if they drop the tariffs against Canada, they are still maintaining tariffs against so many other countries around the world. Israel dropped their tariffs before so-called Liberation Day. They still got walloped with 17%. I mean, make it make sense. So Canada is going to be facing a more difficult, more volatile, challenging relationship with our largest trading partner for years to come. And our social programs can help smooth out some of those bumps in ways that the United States just doesn't have the same sort of systems.

Our programs here are imperfect, but they are certainly a big asset for us going forward. You all know Robert Reich, the former Labor Secretary in the United States. He had this to say earlier this month, and let me read this, Sheldon, if you would bring up this graphic, and I'll read along for those listening on podcast. What should other nations do, he asks. My strong recommendation to Canada, Mexico, Japan, and the European Union is to join together to create a free trade zone that excludes the United States, imposing at least a 10% tariff on all imports from America.

They should also threaten to limit American banks' access to their public stock markets, put limits on what their citizens can invest in American companies annually, and increase taxes and regulations on American digital platforms. OK, Drew, what do you think? I'm a big fan of Robert Reich, but that's easy for him to say. So we did put a tax on digital services and it's

been hugely problematic with the United States, probably the right thing to do, we did it on our own. You know, what would the pension funds, we don't have many world-beating organizations but the so-called Maple Pension Funds, you know, protect their right to invest where they want for their Canadian recipients' pensions pretty strongly. What would they think of that? And then on top of that, of course, we're hugely dependent on the US market,

not because we're weak or we're disorganized. That's where the people are. You know, that's where, that's what? We're next door. We're next door. You's where, that's what? We're next door. We're next door. You know, so we're, and we want to diversify and we can do both at the same time. But so in some ways we probably want to make common cause with those countries in the context of the de-democratization, if you will, of the United States in terms of things like

human rights, democratic processes, support abroad. But on pure trade terms and economic terms, we're vulnerable in this situation. We made ourselves vulnerable for the best possible reason, and now we have to manage it effectively. Jennifer, the Robert Reich strategy, what do you say? Also a big fan of Robert Reich's bot on this one. You know, that's kind of dialing it to 11. But more than that, I think his approach also requires a huge

amount of coordination and complex coordination amongst amongst a variety of nations. You know, I think we're still waiting to see honestly, what the final position of the EU will be, the UK, a few others. I'm also not clear that any of those countries are really looking to Canada to take the lead in this. I also see another potential risk here for us that is going to require some strategic coordination with other countries, which is that as these global tariffs take hold, while

Canada and Mexico are not subject to the so-called Liberation Day across the board tariffs, we could end up essentially being a destination to divert exports that are ultimately meant for the United States. And that could create new vulnerabilities for us as well. I just want to say one thing on the digital services tax. It occurs to me that actually yesterday was the day that the registration portal opened for the affected businesses, the metas, the other businesses that are going to be affected by that. And so perhaps it's not so much the Dial at 211 approach of Robert Reich, but maybe it's

a good idea to send letters to many of those tech oligarchs who supported Donald Trump to remind them that, you know, that the portal is available for them to start registering their business to start paying the tax. Ian Lee, before I ask you to weigh in on this, I see that on Reuters, this has just moved. European Union countries will seek to present a united front in the coming days against the US, likely approving a first set of targeted countermeasures on up to 28 billion of US imports. Such a move would mean the EU is joining China and Canada in imposing retaliatory tariffs on the US. Maybe Robert Reich has got to the EU.

Well, two points. I have said repeatedly that I put China and EU in a different category from all the other countries of the world. Just to put some big numbers on the table, US is about 30 trillion, 28% of the world's GDP by the way. China is about 19 trillion and US dollars in Europe is around 17, 18 trillion. All the other countries are much smaller, mostly single digit, including Japan, Germany. And so the other countries of the world simply do not have the leverage or the strength or

the power of those two regions or countries. So they're going to be much more likely that they would do retaliation because they're much, much bigger and stronger. But coming to Robert Reich, as I'm sure you can figure out, I'm not a fan of Robert Reich because I characterize his and I followed his career since he was when he was at Berkeley and then he became the Labor Secretary under Bill Clinton. Smart guy. But he, I mean, he's progressive and he believes that government is mostly is going to provide solutions. In that statement you read, my problem is this, if you think of

free trade and I've supported every free trade agreement that this country's engaged in since 1988, free trade is at one end of a continuum, which means the elimination of protectionisms writ large, including tariffs. And at the other end are various protectionisms, quotas, regulatory regulations that impose differential rules on foreign competitors versus domestic competitors, and of course, tariffs. Most of those solutions that Professor Reich proposed are protectionist, and they double down. And protectionism, I've long argued with my own students, is just another word for discrimination against ordinary people. Because what protectionism does is it reduces

or eliminates foreign competitors so that domestic competitors can drive their prices up as dairy farmers have done. We're paying twice the price of milk and dairy if we didn't have supply management. Telecom, we don't allow foreign telecom into Canada, so we pay some of the highest prices in the world. So protectionism is a racket, I'm being really blunt now, is a racket by the elites that raise prices for ordinary people across the country. And whether we call it tariffs or whether we call it non-tariff barriers,

they're all designed to reduce outside competition so that domestic oligopolies can charge higher prices. And that's exploitative and discriminatory towards ordinary people. In which case, in our remaining couple of minutes here, Drew, if not tariffs, what? What do we do? Get back to the negotiating table.

Knowing that it's going to be an extremely difficult negotiation with this administration, we've gone through periods in Canada-U.S. relations in which the United States actually did act like a big brother. Really, back in the Eisenhower administration, it was exactly like that. And we've got a guy in the White House now who unilaterally breaks agreements he himself has signed. Exactly.

So what's the point of going back to negotiating? He only signed one free trade agreement and he broke it. Right. So what's the point? He only signed one free trade agreement and he broke it. Right. So what's the point in negotiating with him? Try to get a better sense of where he stands, a better understanding and come up with some grand bargain. At the same time, I think so much damage has been done that we do have to pivot in various ways. But we have to be realistic about what the benefits of those might be, including diversification, and including the size and potential of the domestic market. Jennifer, let me give you the last 30 seconds on that.

If not tariffs, then what? Well, actually, tariffs and. So job one, keep the country together, keep Canadians united. That's a non-trivial problem to us right now. Again, continue giving sympathetic, or at least neutral Americans, reason and motivation to agree with Canada. Number three, put together a list of things

that we can afford to give up and use as bargaining chips. For example, why do we still have a fentanyl czar? Why are we still playing along with that? That's also where the targeted retaliatory tariffs can be useful. That's where things like the irritant of the new CBSA system that the Americans are complaining about can be useful. And then also we're going to have to make some difficult choices. We're going to have to spend more on defense policy than we are used to. We are going to have to reorient the priorities of government. We are going to have to reinvest in federalism.

That's a long road ahead and again have to keep Canadians solidly behind that agenda. On that note of seeing three heads nodding to that last comment, we're going to get out of here. Jennifer Robson from Carleton and McGill universities, Ian Lee from Carleton University, Drew Fagan, Munk School of Global Affairs and Public Policy at U of T, thank you all so much for that great discussion. Thank you. Thanks.