The Decibel - The U.S.–Canada trade war, explained

Episode Date: February 3, 2025

The economies of Canada and the United States are on a collision course. On Saturday, U.S. President Donald Trump signed off on 25 per cent tariffs to be imposed on all Canadian goods, beginning February 4. In response, Prime Minister Justin Trudeau levelled tariffs back toward the U.S., warning that “the coming weeks will be difficult for Canadians and they will be difficult for Americans.” The trade war effectively transforms a decades-long economic partnership, with serious implications for millions of workers.Jason Kirby is reporter for The Globe and Mail and Report on Business section. He breaks down the details of the tariffs, what it will mean for major industries and why this fight will likely send Canada into a recession.Questions? Comments? Ideas? E-mail us at [e-mail]

Canada is now in a trade war with its largest trading partner, the United States. The coming weeks will be difficult for Canadians and they'll be difficult for Americans. After threatening for months, US President Donald Trump signed an executive order slapping tariffs on Canada and Mexico. The tariffs will go into effect on Tuesday, February 4th. Tariffs don't cause inflation, they cause success. They cause big success. So we're going to have great success.

There could be some temporary short-term disruption and people will understand. But that disruption won't just be caused by Trump's tariffs. A few hours after he announced them, Prime Minister Justin Trudeau hit back. Tonight, I am announcing Canada will be responding to the U.S. trade action with 25 percent tariffs against $155 billion worth of American goods. This trade war reverses decades of economic partnership between the two countries. North America's economies have been built on the free flow of goods, and undoing this could affect millions of jobs. So today on the show, I'm joined by Jason Kirby. Jason is a journalist with the

Globe's report on business. He'll break down the details of these tariffs, the serious cost to the Canadian economy if the trade war continues, and how this may affect you directly. I'm Madeline White, sitting in for Maynika Ramon-Wilms, and this is The Decibel from The Globe and Mail. Hi Jason, thanks so much for joining us on a Sunday. Thanks for having me on. So we should know that we're here talking at about 1 p.m. on Sunday afternoon.

This has been a fast moving story, so we're gonna talk about what we know as of right now. So to start, I just wanna establish a bit of a timeline because a lot has happened in the last week. Jason, how did everything unfold? Well, I mean, everything began to unfold with the election and then shortly after, we get the announcement that Trump wants to impose these tariffs on Canada, Mexico and on China. And then, you know, we were all bracing for that. That was supposed to be as of day one,

which feels like 10 years ago now already, but it was only January 20th. Exactly. And nothing happened that day. So there was this moment of like, oh, okay, well, maybe we're going to escape the worst of it by the nighttime. No, it turns out, you know, he announced it was going to be February 1st. Throughout the week, there's been loads and loads of diplomatic efforts to kind of head things off. And even on Friday, there was leaks. It was a Reuters story kind of comes out, says, hey, maybe we're going to be able to find a way

to avoid the tariffs, immediately followed by the White House saying, nope. Mr. President, is there anything China, Canada, and Mexico can do tonight to forestall your implementation of tariffs tomorrow? No, nothing. Not right now, no. Sure enough, we've got them now.

Yeah. They come in on Tuesday. And so I think the way it was on Saturday, because there was a lot of anticipation on Saturday, we had Trump kind of announce that he'd signed the executive order around like six o'clock and then Trudeau came in and addressed everyone at like nine o'clock. Nine o'clock last night, yeah.

Yeah, a lot has unfolded in the last 24 hours and there's still a lot of uncertainty in the days ahead. So let's dig into this a little bit more. Can we look at Trump's executive order here? What are the details of the American tariffs? So the American tariffs are 25% broad-based tariffs on all imports from Canada, except energy, which will be 10%.

OK. He's able to do this essentially because he's declared there's like a national emergency. National emergency with fentanyl and at the border with illegal immigration. So he's citing those as the justification for using these emergency measures to impose these tariffs,

which they wouldn't be able to do this otherwise because of the free trade agreement that we have. Right. In North America. And this was specifically with an emergency happening at the northern border. Yes. And he'd already announced the southern border emergency actually on inauguration day. So, okay, let's talk a little bit about how tariffs work though. So, can you kind of explain to me the mechanics behind this just to bring everybody up to

speed so we all kind of understand that? Well, import tariffs are paid by the customers, the American customers who are buying the goods coming across the border. So when we ship whatever it is, a hat, the buyer of the hat, they are the ones that pay that tariff to the US Treasury and ultimately gets passed on in higher prices to the American consumer. Right. So is it too simplistic to just say like a tariff is another kind of attack? It's a tax. It's exactly a tax. Right. Okay. Let's turn to the Canadian response now. Justin Trudeau addressed the nation late on Saturday. What did he say

about how Canada is going to retaliate to Trump's tariffs? Well, it's going to be starting off. It's going to be significant. 25% tariffs on $155 billion of US imports. Initially, there will be $30 billion of goods that have been identified starting Tuesday. The remainder will come after 21 days. That's going to give Canadian importers and companies time to source and find alternative suppliers for those items. So this is what we know and we've just gotten this list. Products will be things like fruits and meat, milk, carpets, curtains, wine, beverages,

cosmetics, rubber tires, wood products, clothing, appliances, toilet paper. I note that one because we remember exactly what happens when supplies of toilet paper get concerning and people kind of lose their minds. So I'm a little bit nervous about the stockpiling that's going to be happening as well. So those are the tariffs we are imposing. But on Saturday, Trudeau also said Canada was considering applying some non-tariff options on the US in the future.

What could those look like? Okay, so what we don't know is any of the details. They said, Trudeau said this yesterday, they've reiterated today, non-tariff measures are a possibility. They have mentioned procurement. Canadian governments buy a lot of services and goods from American customers. So we're already starting to see some push up by that at the provincial level and likely at the federal level, reviewing contracts with American suppliers, changing the terms,

you know, canceling those contracts or, you know, looking for Canadian suppliers. Again, that comes with higher costs. So that's one thing we're starting to see. We are also seeing provinces taking steps like taking US alcohol off the shelves. That's not a tariff measure in any way. But then there's also non-tariff measures. And this gets at one of the realities of all this

is Canada supplies a lot of critical minerals. It supplies uranium. It supplies potash, which is used for fertilizer. It supplies oil in such significant ways to the United States that should we be using that as leverage? And we've seen this question come up, should Canada in place of now that we know that there's a 10% tariff on oil, okay, well should Canada impose a 15% export tariff to bring that up to the 25% matching all the other tariffs that the US has? And that's why the US has put only a 10% tariff on oil and

energy imports versus 25% for all other products because they don't want gas prices to start rising. They don't want energy prices to start rising. They don't want energy prices to start rising in the US and hitting households there. The idea here is you want Americans to hurt in their pocketbooks. You want them to feel the pain at the pumps. Is that something export taxes, export restrictions in some sort, uranium? All these products, commodities have been talked about. The problem is the provinces, Alberta and Saskatchewan that produce them, have said that this will really, really hurt our producers if all of a sudden

there's any sort of artificial federal measure put in place that restricts the flow to the states. So there's a constitutional challenge, challenge right there that is going to have to be dealt with. But if Canada were to impose export taxes on commodities, it could theoretically take that money rather than putting that money into Ottawa's coffers. It could funnel it right back to the province right away.

So that money goes straight to those provinces. So how did Canada come to this number of, you know, 30 billion at first, possibly rising to 155 billion? I think that they basically want to start showing that Canada takes this very seriously. We want to find products that are going to have an impact on those American companies that are shipping up here. This is a trade war. And in a trade war, like any war,

there's going to be casualties, and there's going to be injuries. And the injuries in this case are the pocketbooks of households who are going to be paying for these goods. You're also, at the same time, trying to inflict damage on specific products. You know, oranges are on there and oranges from Florida and you're going to be targeting like the suppliers down there and hoping that they will start to put more pressure on the leadership and on the White House to say, reign this in, you know, come to your senses. So that's kind of like what drives these products.

It's going to be interesting to see. This is a very wide ranging selection. There's going to be more coming as we see the next round. That's going to be released, I think they said, sometime this week. Right. And so now we're in a situation here where the US is facing tariffs from Canada. They're facing tariffs from Mexico.

Mexico is facing tariffs from the US. Canada is facing tariffs from the US. We got tariffs flying in all. And China is facing tariffs from the US. Canada is facing tariffs from the US. We got tariffs flying in all... And China is facing tariffs from the US. Yes. We have a lot of tariffs and a lot of retaliation here. So just overall, what does that mean? Does that just mean like higher prices for all of these countries essentially on most items? Yeah. The longer this goes on, it's higher prices.

It's in Canada's case. If this were to continue, it's a recession. There's no question. Does it happen in six months? Does it happen faster than that? In the US, it's not going to lead to a recession unlikely because their economy is doing so well. But it is going to lead to higher prices

unquestionably. You know, in the case of the auto sector, there's just so much stuff going back and forth. It's going to bring that sector to a halt very quickly. And that's going to lead to layoffs. It just spirals very quickly. So when Trudeau was speaking on Saturday night in his speech, he mentioned something along the lines of like, nobody asked for this. We don't want to be here. We didn't ask for this, but we will not back down. I think a lot of people are trying to understand why this is happening.

Jason, what did the executive order say to justify these tariffs? Well, I mean, the executive order says it's about this emergency, this fentanyl emergency. You know, the reality is we're not a major supplier of fentanyl or a major cause of fentanyl imports into the US. I think it's 1% of all fentanyl. Yeah, I remember learning that it's like in 2023, there was only 43 pounds of fentanyl

that was seized crossing over the Canadian US border coming from Canada. So yeah, that definitely represents less than 1% of all the fentanyl that was seized crossing over the Canadian-U.S. border coming from Canada. So yeah, that definitely represents less than 1% of all the fentanyl that was seized by American authorities that year. Likewise in terms of illegal border crossings, we are not a problem. I mean, that's more of an issue with Mexico, but even they're dealing with that. But the other thing that Trump has repeatedly hammered away at is this idea of that Canada has been taking advantage and exploiting the United States for years because of the trade deficit and this idea that America has been taken advantage of and they're subsidizing us through this trade deficit.

They've treated us very unfairly and I say why should we be subsidizing Canada? He's talked about that over and over and over again. And that's again, part of like his justification for doing this. So can you break down what a trade deficit actually means though? A trade deficit is basically that you import more than you export to a particular country or to the world. America has a global trade deficit with the world. It buys, you know, way more stuff than it sells to the

world. In terms of Canada, they also do have a trade deficit with Canada in that they buy more from us. And he's hammered away at this. Now he keeps throwing these numbers around, claiming it's 200 billion, a $250 billion trade deficit. Actually, it's around 60 billion deficit if you just look at merchandise goods. That's per year? That's per year. But what that doesn't factor in is oil. So we supply a lot of oil to the United States.

We supply it because it's affordable, and we're a reliable supplier. And if you remove the oil from the equation, the US has suddenly a $45 billion surplus in goods. The other thing that he never factors in is services. The US has a very large services trade surplus with Canada. A lot of that is because of all the travel that Canadians do going down. Travel is a service. So if a Canadian travels down to the United States, goes down to Florida, goes to Disney World,

stays at a hotel and everything, that's actually counted as an American export of a service, even though you're the person going down there. So in terms of travel, that counts as a very significant service export. And that's why the US has a big surplus in that as well. So when you take oil and you factor in services, the US actually has a very large surplus over Canada.

I guess I'm just still struggling to understand, though, exactly at the end of the day here, what is the goal of these tariffs? They scary, weird, and if you listen to Trump saying it over and over and over again, explanation is he wants to make Canada the 51st state. Right. I don't know whether that's just a way to try and get under our skin, or if he actually somehow deep in his brain thinks,

yeah, I get to be the president who's going to add another state to America. He may. But I think the other thing that he really wants to do, the more instability and chaos he can cause in other countries, the less a business that is deciding where they're going to invest and open up a plant, the less likely they're going to be to invest that dollar in Canada and more likely they are to invest that dollar in the United States. And I think that's ultimately what it is. He wants to have anything that Americans buy be made in America. And he thinks that that's the better way. If America is going to make everything that it buys at home, it has to be American wages.

Somebody has to pay for those goods, those cars, the fruits, the vegetables, the eggs. Americans are losing their minds over the soaring price of eggs right now. So, you know, if everything was to come from America and be made in America, it's going to have to come with made in America prices that would factor in the higher wages. Right. Now, presumably, though, also, the US government is going to generate quite a bit of revenue from this because not all of the American companies will stop buying Canadian goods or Mexican goods. Some of them will just pay the tariff. So is this ultimately about tax revenue?

He talks about this as well as, you know, hey, we can reduce corporate taxes, you know, and then we're just going to enjoy this bounty of import tariff money. He seems to think that it's the other countries that pay that, even though it's the American importer that's going to be paying the duties. But even if the importer pays the duties and passes that along, the amount of revenue that they're going to generate from that is dwarfed

by the amount of revenue they currently get from their existing tax base, whether it's corporate or personal taxes. And so it doesn't come close to making up that gap. It also fails to acknowledge the fact that over time, if there is these big duties, American businesses will start to scale down how much they import. And that revenue source will just decline as a result.

I mean, an import duty is basically meant to slow the amount of that product coming in from another country. If that happens, then you're going to start over time not generating as much revenue, I guess, from the import duties. So the math doesn't math at all. We'll be right back. So now I want to look at the impact that this trade war could have because again I want to re-emphasize that these tariffs do not start until Tuesday and

the impact does depend on how long they are in place. But let's start by looking really big picture here. What kind of impact might this have on the Canadian economy? Well, a recession seems inevitable. It's a question of how deep and how fast it comes on. Just before I came in here, I was looking at some of the economic forecasts. One suggested that Canada's economy would shrink 2% in 2025 compared to right now there's a projected growth of 1.8%.

Trevor Toome for the Chamber of Commerce did an analysis that basically said that households would lose about $1,100 in annual income if these tariffs stay in place. Then there's the job number impacts. It's been estimated there's 2.4 million Canadian jobs that are exposed to US tariffs. That's like one in seven jobs in Ontario, one in seven jobs in Alberta. Wow. Yeah.

And so do all those jobs go away? No. But we've already started to see some companies announcing layoffs because they already know that their customers in the states, knowing that this was coming, were already curtailing their orders. And then that just means that the Canadian businesses that are often running at razor-thin margins anyways,

particularly in manufacturing, they're just in position. They're now scaling back in their workforces to adjust to that. So the layoffs have already started. We're really going to see this week a lot more announcements like that, I think. Hmm. I mean, we are hearing some very scary numbers, right? You just mentioned a few there, but I've also heard Doug Ford talking a lot about the impact that this will have in Ontario specifically. Unfortunately, it's going to hurt Ontario and Canadian jobs. It could cost 500,000 jobs.

These tariffs will affect every single person. Even if they don't think they're tariffed in their sector, it's going to indirectly affect them. Do we have a sense of like the breakdown in terms of which sectors will get hit the hardest and maybe the fastest? One of the fastest, especially if the auto sector does immediately start to just grind to a halt. We're gonna see layoffs in that sector. I believe something like 125,000 Canadians are employed in that sector. A lot of similarity to going through that early period

in 2020 when all of a sudden factories were shutting down and everything was shutting down because of COVID. As the pandemic was taking hold and it was disrupting supply chains, companies just said, okay, well, we have tools down and they were immediately announcing layoffs. And I kind of feel like we're gonna be in that zone again of just like these rapid announcements as companies

just are trying to figure out how they're gonna survive this. And one of the immediate things they'll do is just shutter plants and we're gonna be seeing some layoffs as a result of that. So presumably if that does happen, and I recognize that is an if right now, will there be spillover effects on industries that are not directly targeted by these tariffs? In many ways, if you get that pink slip or that layoff notice, or even if it's just a

temporary layoff notice, you're going to defer purchases. If you're thinking of buying a car, you're going to not do that. If you're thinking of buying a house, you're going to wait. That's the insidious thing about all this. Even if you haven't actually got the layoff notice, now it's in your mind that especially if you're one of those people in one of those industries, any manufacturing company, any exporting company is going to be hit by this. So, you know, it's going to be in your mind and people are going to kind of retrench and hold on to their money and start having rainy day funds and

saving, putting their money aside for that. And that's just going to curtail demand and that's how you get into a recession within six months as some have said. Right. And I mean, I think we've learned through the last few years with all the inflation talk that a lot of our economic reality is actually driven by kind of psychology around these things. Yeah. That's interesting. Okay. I want to keep going here on terms of psychology around these things. So that's interesting. Okay, I wanna keep going here on terms of the household level impact.

In terms of specific numbers, what might Canadians be able to brace themselves for if this trade war continues? Well, it's really hard to know when there's these calculations like $1,100 in lost annual income. That's kind of like an aggregate measure for households

at the aggregate level. Yeah, if you work in manufacturing, if you work for a company that does a lot of exporting, you're going to be facing some concerns for sure that how safe is my job? Never mind about getting raises at this point and keeping up with higher inflation. I mentioned earlier on toilet paper, I'm a little bit,

I am quite concerned that we're going to see kind of like those scrambles in the grocery stores, run on products and stuff like that. And it's just getting back into that chaotic mindset that we were in in 2020 when there was all the toilet paper shortages and things like that. Yeah, yeah. And I can understand that behavior, right? It is a very anxious time. Something else sometimes we see when people are feeling economically uncertain is around selling investments,

changing up their investment funds if people are fortunate enough to have that kind of wealth. Generally speaking, I know we're not here to give investment advice, but what do experts tend to say about how best to proceed in these kind of uncertain times? Yeah, what they always say is don't panic. Unfortunately, people tend to panic.

And we do know that already the markets are going to be looking very shaky tomorrow. The last thing you want to be doing is selling and sort of panic selling because you're just locking in losses if stocks drop. So it's really hard to, when you are seeing volatility in your portfolio and you're seeing things red flashing everywhere, it's really hard not to panic.

But you've got to really try to look beyond this. I know it's really impossible. We have no idea how long this is going to go for. In a week, they come up with some sort of face-saving end or an exit that says, I won, I declare victory. Trump gets to say that and it's over. But if it continues and we have 25% tariffs for extended periods of time, markets are going to go through an extremely volatile period and it's just going to be a ride that people have to be braced for. Yeah.

Just lastly here, Jason, Trudeau mentioned the possibility of Canadians playing a part in our efforts here against these US tariffs. Now is also the time to choose Canada. There are many ways for you to do your part. It might mean checking the labels at the supermarket and picking Canadian-made products. It might mean opting for Canadian rye over Kentucky bourbon or forgoing Florida orange juice altogether. How effective is boycotting, though? I mean, on the one hand, the unfortunate reality is Canada's small.

And so we're going to have a very hard time punching back. And in punching back, we're going to be punching ourselves at the same time. That said, there is certainly a very strong and rapid boycott movement that is taking hold. It's clear everywhere. People are canceling their trips to the United States. You're seeing Made in Canada stickers at grocery stores. It's hard to say whether these things actually

will have an effect. But I do think travel and tourism, for instance, is a big one. Florida depends quite significantly on Canadian travelers going down there. And if Canadians just were to stop those trips and cancel those trips and say, Hey, you know what, I'm not coming down there for this reason. That's going to trickle back and that's going to start affecting their local

service economies that are a huge, huge part of the American economy is service. That starts to have that momentum of hopefully putting pressure on sane voices who somehow can get the president's ear and start to say, look, we're all hurting down here as a result. The problem here is if you start down this thing of, well, I only want to buy Canadian stuff. Well, guess what? Canada buys a lot of imports, a lot of stuff from Mexico and, you know, from South America and Europe, you don't want to get into a situation where you're saying, well, we don't

want to buy anything from those places. We need that stuff or else we ourselves are going to be facing incredible inflationary pressures. If all of a sudden we stopped buying from those places and you only want to be buying Canadian products, those products are going to start to rise in price and it's going to be more inflationary. So yeah, no one wins in this. There is no way of punching back without breaking your wrist. There's no way to do anything logical in this situation. That's what really makes it so frustrating. Jason, thank you so much for joining me today.

Thanks for having me on. That's it for today. I'm Madeline White. I produce The Decibel with Michal Stein and Ali Graham. David Crosby edits the show. Adrian Chung is our senior producer and Matt Frainer is our managing editor. Thank you for listening and I'll talk to you tomorrow.