The Decibel - Trump declares trade war, Canada prepares counter tariffs

Episode Date: March 4, 2025

On Monday, U.S. President Donald Trump vowed to follow through on his economic threat against North American neighbours – his government plans to impose 25 per-cent tariffs on goods from Canada and Mexico. In response, the Canadian government said it would retaliate with tariffs of its own. The tariff plan disrupts Canada’s most important economic relationship and would effectively throw the two nations into a trade war.Nojoud Al Mallees is The Globe’s economics reporter. She explains exactly what Trump said he’d do, what tools Canada can use to fight back and the serious pressure the economy could soon be under.Questions? Comments? Ideas? Email us at [e-mail]

On Monday, Canada faced its second US tariff deadline. Last month, US President Donald Trump issued a 30-day pause on across-the-board tariffs on Canadian goods. That reprieve expired at 12 a.m. Eastern Standard Time on Tuesday morning. No room left for Mexico or for Canada. No, the tariffs, you know, they're all set. They go into effect tomorrow. — A lot is still up in the air as negotiations continue

between Canadian and American officials. So, Globe Economics reporter Najud al-Malis is here. She'll explain what we know about the tariffs Trump says are being imposed on Canada, why we could be hit with even more tariffs in the next month, and how it all affects the Canadian economy. I'm Maenaka Ramen-Wilms, and this is The Decibel from The Globe and Mail.

Najud, welcome to the show. Thank you for being here. Thanks for having me. So you and I are talking around 7 p.m. on Monday evening. What have we heard so far about these tariffs? So U.S. President Donald Trump has confirmed that he is going to go ahead with putting tariffs on goods coming from Mexico and Canada, 25% tariffs across the board for our energy sector would be 10%. And he essentially said that there is no way for Canada to or Mexico to get out of these tariffs.

There's no deal to be struck. And it was a real pivot from what we heard from the Commerce Secretary Howard Lutnick on the weekend and even this morning that made us feel that maybe, maybe tariffs won't come into place or maybe they won't be at 25 percent. But so far it's going ahead right after midnight. And then what kind of response did we hear from Canadian leaders? There's been some disappointment expressed from Canadian officials. Foreign Minister Melanie Jolie expressed that disappointment and said Canada will be ready

to respond. If Trump is imposing tariffs, we're ready. We are ready with $155 billion worth of tariffs and we're ready with the first tranche of tariffs, which is 30 billion, which is already known. Right now we're shaping up to be in kind of the worst case scenario we weren't hoping for, which is tariffs going through, going ahead on all goods, at least for now. Yeah.

Yeah, you mentioned the response of Melanee Jolie. We also heard from Ontario Premier Doug Ford. If they want to try to annihilate Ontario, I will do everything, including cut off their energy, with a smile on my face. I want to go back to something you mentioned, Ajit, about how what we heard today was actually a little bit different from the things we heard over the weekend from Howard Lutnick, who, as you said, was the US Commerce Secretary, because he was talking about the negotiations between Canada and America and Mexico, how there was progress being made. Could you just tell me a bit more about the comments

from the weekend and how they differ from what we heard from Trump on Monday? Yeah, so he said during a interview with Fox News on the weekend that Canada and Mexico were doing a reasonable job, that they were doing a good job with the border and that migrant flows have fallen dramatically. He said that fentanyl is still a problem and that the US is still very concerned about fentanyl, but he suggested that maybe tariffs wouldn't come in at 25%. He kind of punted a decision to the president saying that

he would make the final decision. And even this morning, he did an interview with CNN where he also said that Canada and Mexico had done a reasonable job. In neither conversations did he say tariffs won't happen, but, you know, the praise gave the impression that maybe this will be good enough to stave off tariffs, to decrease the rate of tariffs, that maybe they wouldn't be across the board, whatever it is. And the president's comments this afternoon were nothing like what Howard Lutnick said, and instead he said there is no room for negotiation and he's going full steam ahead. Yeah. Canada has already announced 1.3 billion dollars to help tighten the

border, border security, both in terms of drugs and people getting through. We've also appointed, of course, a new Fentanyl czar. This is the former deputy chief of the RCMP, Kevin Brousseau. Najud, what else does the US want in order to drop these tariff threats? Do we know? I think nobody really knows.

There is a whole list of grievances the US has with Canada, with other trading partners. I mean, when it comes to Canada specifically, dairy and access to the dairy market has been an issue that's been raised. The Trump administration doesn't like the fact that we have the digital services tax, which is a 3% tax on tech giants. And there has been other issues that have come up, just the fact that, oh, there's a trade deficit. Oh, Canada is one of many countries that has a value added tax, and that's like a tariff.

And so there's a long laundry list of issues. Once we deal with one, it seems like another one pops up. So I think it's difficult for anyone to say that they know what exactly the Trump administration is after. And that's just in terms of Canada. There are many other countries that the US seems ready to go after right now with tariffs.

It's an interesting thing. There seems to be, as you say, a whole bunch of issues that are raised when it comes to tariffs with Canada. You mentioned the dairy market, for example. We'll come back to that a little bit later. But the initial reasoning, of course, was border security, and fentanyl seemed to be a big part of this. I just want to do a really quick kind of fact check on this, Najude, because we've been hearing a lot about this issue at the border. But we should say that we know in February, the Canada Border Service Agency intercepted 56.1 grams of fentanyl at the border. That includes 20 fentanyl pills, 23 grams of a substance it believed to be fentanyl from two US citizens at the Windsor Detroit crossing. So I guess the point is that the fentanyl flowing into

the US from the Canadian border is really quite minimal, especially when US border agents look at how much they've obtained at the southern border, over 990 pounds of fentanyl in January. So I guess just fact checking that we really don't seem to see the evidence that fentanyl is the cause of these tariffs. Maybe not in the numbers, but definitely in the way that the Trump administration explains these tariffs. Maybe not in the numbers, but definitely in the way that the Trump administration explains

these tariffs. Everybody around the Trump administration, in the Trump administration, even Canadian officials who've been talking to folks in the Trump administration say that that is what is motivating this. We don't know if it's about US domestic politics. Obviously, fentanyl is a big crisis in the US. It's a problem here in Canada. Is this part of a campaign within the US to show that we're serious about cracking down on fentanyl? I don't know. Is it personal to someone in the Trump administration? I don't know.

And so it's difficult to understand what exactly is behind the focus on the border with Canada. Of course, we have these one set of tariffs going into effect on Tuesday on Canada and Mexico, but this is actually only one of a number of tariffs that the US administration is talking about. Najude, could you just briefly explain the various different kinds of tariff threats that that Trump is talking about? Yes. So tomorrow's tariffs are the across-the-board tariffs that were

promised a month ago and then delayed for 30 days because of a deal that was struck on the border. March 12th, so next week, is when 25% tariffs on aluminum and steel are supposed to come into effect and that would be presumably layered on top of the 25% tariffs that would come into effect on Tuesday. So we get that 25% general tariff and then an additional on the aluminum and steel. Yes, so 50% tariffs, presumably. And then you have the April tariffs.

April 2nd, that's when the US is supposed to go ahead with what they call reciprocal tariffs, which is essentially matching tariffs or other trade irritants or sources of what the US calls trade barriers, matching them with US tariffs on other countries. So there are minimal tariffs that Canada applies on certain goods. Other countries also do the same, but those are quite small in our case. The problem with how the US is approaching this is that they're also looking at things like our goods and services tax as essentially a tariff.

Like our general GST basically across the country. Yes, because they say it functions like a tariff when in reality these taxes are applied on all goods regardless of where they come from. Canadian goods are subjected to the same sales tax. And so if that's actually how they're going to proceed with the reciprocal tariffs, they could be quite significant given that we have a 5% GST and we also have provincial sales taxes. And then you layer on the other tariffs we have and however else they calculate this, that could be another significant tariff.

And so as of right now, presumably that would all be layered on top of each other, which would suggest that we would go north of 50% tariffs if the Trump administration actually follows through with all its threats. Wow. I want to ask you a couple of questions about these reciprocal tariffs, Najude, because I think they've flown under the radar a little bit, and some people might not be as aware of really what this encompasses. You mentioned that the US could be viewing our general sales tax, that the GST is a trade barrier. Help me understand, how could that be viewed as a trade barrier?

Well, I think that's what a lot of people are trying to figure out. But at least what the Trump administration has been saying is, well, other countries can sell their goods in the US, and they don't pay these value added taxes, but then US companies are selling their goods elsewhere, and they are paying those taxes. And so if you see everything in the prism of do you have a trade

surplus or trade deficit with other countries, they seem to be connecting those two things. But frankly, I think a lot of economists are having a hard time wrapping their head around how the US sees these taxes as discriminatory or as equivalent to tariffs. And we've been so busy focusing on the across the board tariffs and aluminum and steel tariffs that I think because that's a month away from now, we haven't really delved into what exactly the US plans to do. And they're supposed to have this study that is complete in April on the US's trading relationships with other countries. And I think many people are waiting to see what comes out of that study and what kind of clarity they may get on how reciprocal tariffs are going to be calculated because

so far we don't really know. And within this reciprocal tariffs here, you also mentioned earlier the dairy market. So this is like our supply management industry when it comes to that, as well as the digital services tax that Canada has. Help me understand how these things are viewed by the administration and why they would be responding to them. Well in Canada, we have agricultural supply management, which means that for dairy, poultry and egg, we protect our farmers, our industries from competition and

international competition and that means if the US wants to sell dairy in Canada those companies have to pay massive tariffs and so it's a form of protectionism or it is protectionism that has irritated the US for years. This came up during NAFTA renegotiations. This is not the first time Trump has complained about Canada not being fair to US dairy farmers. And so we have not seen really a Canadian reaction to that, other than for politicians to say

that they will stand behind supply to say that they will stand behind supply management, that they will defend Canadian farmers. On the digital services tax, this is part of an international push to ensure fair taxation. And Canada went ahead with putting this digital services tax that would apply to tech giants, and obviously that would affect really US companies. And so they see it as discriminatory that another country is applying taxes to their own companies and that it's unfair. And so it seems to be that the digital services tax is going to come into the calculation

for reciprocal tariffs. But again, we don't have a formula and we haven't seen how these are going to be calculated. And to be clear, these reciprocal tariffs, they aren't just for Canada and Mexico. This would be something that the US puts across the board then. Yes. There's been a huge focus on Canada, Mexico and China to start off. You know, there have been theories floated, including by Krista Freeland, Liberal leadership candidate, former finance minister, who said that the US is using Canada

as an example, to make an example out of Canada for the rest of the world, that we will go after our closest ally. And so watch out, what could we do to you and so the whole world is right now watching but yes there this this would presumably this kind of treatment is going to be directed elsewhere including the European Union we'll be right back so Najud as far as we know the initial tariffs that we've been talking about, they're coming into effect Tuesday morning. What do we know about how Canada intends to counter these tariffs?

So a month ago, Prime Minister Justin Trudeau announced retaliatory tariffs against the United States when we thought that they were going to go ahead with across the board tariffs. And it was tariffs on $155 billion worth of goods. They were targeted in ways to minimize impact on Canada and maximize impact on the US. They were targeted at red states, specific goods like Florida oranges and orange juice for example, and they were staggered. A portion of those tariffs were supposed to come into place quite soon and the rest would follow in a few weeks. We haven't so far heard details exactly, for example, when these retaliatory tariffs would come into force against the United States, but the government is planning

to move ahead, it seems, with the same plan. I think this does have people worried, though, about the potential effects of this looming trade war. We're seeing tariffs on both sides here, the effect that's going to have on the Canadian economy. Obviously, this has all been a very uncertain time for Canada, but do we know what effect that uncertainty has already had? Well, the stock market has already taken a hit after Trump announced the tariffs.

And we know that Donald Trump is very reactive to the stock market. So we'll see how he responds to that movement. And we've seen that the Canadian dollar has also fallen. And really, what determines the impact on the Canadian dollar has also fallen. And really what determines the impact on the Canadian economy now will be how long these tariffs come into place. If Donald Trump after a week backs down, presumably the uncertainty would obviously hurt

the Canadian economy. We've already seen that the uncertainty is affecting investment in the country. But if this is prolonged for months and months, there's a good chance Canada would enter a recession and that's been the analysis of economists. And so right now, the length of the trade war will really dictate what kind of impact they'll be to the Canadian economy. Provinces like Ontario and Quebec are quite vulnerable in a trade war with the US. It kind of makes sense why Doug Ford has really focused

on the US and tariffs and is threatening action against the US, whether it's taking liquor off of the shelves of the LCBO or turning off the electricity in the US. And the federal and provincial governments will have to respond with some kind of support for industries, for workers, if these tariffs stay in place. And that could be quite costly and that could be another form of economic damage towards

Canada because the tariff revenue will likely not be enough to make workers and industries whole. So as you mentioned, we've already seen the economic impact with the decline in the stock market, our dollar is falling. You also mentioned that this will affect investment in Canada. Could you explain, I guess, how the uncertainty that we're facing here, how does this affect investments in the country? So Canada has for a long time tried to stay competitive with the US when it comes to investment. But with the US going ahead with tariffs and Donald Trump promising tax cuts and deregulation the US, part of the calculation there for the Trump administration, and they said this

openly is that they want to suck capital into the US. They want companies to open up and manufacture their goods in the United States. And so the Canadian economy is obviously a much smaller economy than the United States. The incentive of opening up shop here under this kind of climate with a country as economically powerful as the United States, placing tariffs or threatening tariffs on Canada constantly, it disincentivizes businesses to make investment plans. And that's not just about people moving shop to the US, but it's also about businesses pausing and waiting to see what happens because the environment continues to change, the tariff threats continue to change from

day to day. And so if you're going to open up some sort of company that's going to sell, I don't know, baked goods to the United States, would you go ahead with an investment to expand your factory and sell more at this time? Well, probably not. The Bank of Canada has already talked about seeing indications that there's been some impact on investment, and there will be more to see if these tariffs stay in place in Canada. In general, Nuju, do we know how competitive is Canada in attracting businesses to the country as it stands,

even before these tariffs are in place? Businesses have long lamented that Canada is a difficult place or can be a difficult place to set up shop for multiple reasons. Canada is a very big country. We're very decentralized in terms of our government structure. And so I've heard a lot that for businesses looking at Canada, they see there are 13 different provinces and territories and different rules and regulations to be following across the country. It's difficult to wrap your head around. And so that's one challenge when it comes to getting investment into Canada. There's also been a general complaint that there's just too much regulatory burden in Canada and getting approvals for projects takes very long. And there was this Statistics Canada study that came out

recently that said the number of regulations, federal regulations that businesses have to follow have increased by I think around 36%. From 2006, I believe until 2021, I think it was a 15 year period. And so that just kind of confirms what businesses have always said that it's just, there's just too many rules that overlap and serve as a hurdle. We don't have the same culture as the United States, where I think there's a there's a big focus of moving things along, whereas in Canada, I think we take a lot more of a cautious approach with projects in general. Before I let you go here, Najude, let's look ahead here. This is, of course, Justin Trudeau's last week as Prime Minister.

So when we have a new Prime Minister next week, what will be their biggest challenges as a result of these tariffs? Well, first, the Prime Minister is going to have to figure out what to do about industries and workers affected by these tariffs. And right now, Parliament is paroched. March 24th is when Parliament is supposed to open up again. And the next Liberal leader will have to figure out how they navigate the decision between calling an election

and getting help out the door to Canadians. So if the next Prime Minister wants to put together some sort of relief package, they would need to do that in Parliament. But for someone like Mark Carney, for example, he is not an elected member of Parliament right now. He's clearly hinted that he would like to call an election if he can, and he is going to be in a political bind if tariffs are in place. The next government, even after the federal election, will have to figure out how to manage this crisis longer term.

And so that means dealing with Donald Trump, the man, his administration. It also means looking at the Canadian economy and figuring out what kind of changes can be made to make Canada more resilient to less dependent on the US. There's been a lot of discussion about diversifying trading partners, about knocking down inter-provincial trade barriers, making it easier for businesses to sell their goods across the country

and making other kinds of reforms, whether that's tax policy or deregulation. And finally, there's going to be an impact on federal finances from tariffs, because the Canadian economy will slow down if these tariffs stay in place long enough, and that will affect government revenues. Any kind of support beyond the tariff revenue Canada collects

will also add on to the deficit. And so the next government will be in a bit of a corner, especially if they want to pursue other plans such as tax breaks. They won't have a lot of cushion. Given the environment we're in, economists are really expecting that we're actually headed towards higher deficits. And it will be up to the next prime minister to figure out what you do about that. Do you accept the higher deficits? Do you start making program cuts? It will be a challenging economic picture to walk into. Najeeb, thank you so much for taking the time to be here. Thank you. Around 10 p.m. Eastern on Monday night, Prime Minister Trudeau released a statement.

It said that, quote, Canada will not let this unjustified decision go unanswered. The statement goes on to say that should American tariffs come into effect Tuesday morning, Canada will respond with tariffs at 12.01 a.m. Eastern Standard Time. The Canadian countermeasures start with 25% tariffs on $30 billion worth of American goods and will increase to include a total of $155 billion worth of goods in three weeks. Our tariffs would remain in place until the U.S. removes its tariffs. That's it for today. I'm Maynika Ramon-Wilms. Our producers are Madeleine White, Michal Stein, and Ali Graham.

David Crosby edits the show. Adrian Chung is our senior producer, and Matt Frainer is our managing editor. Thanks so much for listening, and I'll talk to you tomorrow.