The Decibel - What Trump’s tariff plan means for Canada

Episode Date: November 28, 2024

President-elect Donald Trump is making threats that would have dire economic consequences for Canada. Trump said on Monday that he would impose a 25 per cent tariff on all goods from Canada and Mexico, until both countries stop migrants and fentanyl from entering the U.S. If he follows through on this, it could cause a major disruption for Canada’s economy, and some fear it could trigger a recession.The Globe’s senior parliamentary reporter Steven Chase has been tracking the political fallout of the announcement. He explains how Trump’s plan puts pressure on various sectors of the Canadian economy and how Trudeau and the federal government are planning to face it.Questions? Comments? Ideas? Email us at [e-mail]

This week, U.S. President-elect Donald Trump made a statement threatening the economic relationship between the big three North American countries. Trump said he would impose a 25% tariff on everything coming into the U.S. from Canada and Mexico. Tariffs are taxes put on goods imported into a country, paid by the importer. They're meant to be protectionist measures, making it more expensive for consumers and companies to buy products from outside of the U.S. Canada relies heavily on our trade relationship with the United States, and the lack of demand caused by these kinds of tariffs could plunge Canada into a recession. Today, The Globe's senior parliamentary reporter, Steve Chase, joins us to discuss the fallout of Trump's tariff threats and how Canada is planning its response. I'm Mainika Raman-Wilms, and this is The Decibel from The Globe and Mail.

Steve, thanks so much for joining us. Glad to be here. We should just say off the top, we're talking about 2 p.m. on Wednesday, and this is before the prime minister and the premiers are expected to meet later this afternoon. But I want to just start with the announcement that was made on Monday of this week, Steve. What did President-elect Donald Trump say he was going to do once in office? He said as one of his very first acts, he would pass an executive order that would impose a 25% tariff on all products coming into the United States from Canada and Mexico. And he said that these would remain in place until we stop the flow of illegal migrants and illegal opioids, fentanyl in particular. We stop the flow of these people

and these drugs into the United States. Yeah, as you said in his post on Truth Social, Trump wrote that he had imposed these tariffs and that they will, quote, remain in effect until such time as drugs, in particular fentanyl, and all illegal aliens stop the invasion of our country, exclamation mark, end quote. Do we know, Steve, how much of an issue is this at the Canada-U.S. border? Well, it depends on the year and how you measure it. But I would say just to be in the ballpark, we're talking about 23,000 people who tried to slip across the Canada-U.S. border illegally in 2023. Okay. and we don't have the demographics of these people, but the cases where they've been caught, they tend to be foreigners, that is foreigners to both Canada and the United States who have traveled to Canada

and decided that the world's longest undefended border would be a great way to get into the U.S. Okay, so you said like 23,000 in 2023. How does that compare to the U.S.'s southern border, the border with Mexico? It's a pittance. As one of Canadian cabinet ministers said this week, it's the equivalent of a weekend of crossings. You know, in comparison to the border with Mexico, it's the equivalent on a yearly basis of a significant weekend at the Mexico border.

But it's not something... In 2023, the comparable number would be about one and a half million. Okay, so 23,000 to one and a half million. That is a big difference there. Okay, so that's looking at people. What about drugs, and in particular fentanyl? How big of an issue is that on our border? Again, total difference of magnitude between Canada and the U.S. But in Canada, U.S. customs agents seized 43 pounds of fentanyl at the Canadian border last year. And that's compared to 21,100 pounds at the U.S.-Mexico border. So that's kind of looking at, I guess, the facts behind this there, Steve. But the point is that Trump did make this statement.

And Canada has a lot to lose. The U.S US is our biggest trading partner. In 2023, we exported $592.7 billion worth of goods to the States. That's 77% of our total exports. So if we look at the big economic picture, what kind of impact would these 25% tariffs have on the Canadian economy? Well, they would destroy the Canadian economy. I was talking to people in the auto parts sector who said even a tariff of 10% would do that because that would erase the profit margin. So 25% is like an existential threat. Yeah.

There was some analysis from an economist at the University of Calgary, Trevor Toome, that showed 25% blanket tariff would reduce Canada's real GDP by 2.6% a year, which would translate to a hit of about $2,000 per person a year, if we're looking at GDP. When we know that's not spread out evenly throughout the economy, Steve, what parts of our economy would be actually hit the hardest? Well, I guess there's two questions here. One is, could the Americans find substitute goods? Because if they couldn't find substitute goods, they'd be forced to buy these products, even with the tariff attached.

And the tariff would simply increase the amount of money they're paying for those goods. So, for instance, not easy for them to find other sources of oil. We supply more than half of their foreign oil. And so that would be a 25% rise in oil prices, at least for the $1.5 billion of oil they buy every year. And auto parts are another major sector that we would take a massive hit on. These employ, in Canada, like 90,000 people. It would be devastating for the auto parts sector, which is so integrated into the U.S. economy that parts and partially assembled vehicles move back and forth across the border during the course of their production. I would add wood to that because they buy a lot of wood from us, raw logs or finished timber.

But again, I'm not sure where they'd find easily substitutable products. And so in that case, it would basically be a general sales tax on the American people worth 25%. And what's been the reaction from the Canadian business community? Well, it's extremely concerning to them when they're asking for the governments to fix things, to make it go away. Everybody remembers the Trump 1.0, the first term. And people are pointing out that sometimes Mr. Trump's bluster, it doesn't always match up with the more nuanced position at the negotiating table. So some people are hoping it's just an opening salvo designed to scare Canada and Mexico, of course, into tightening the border, whereas others believe that it's serious and it represents an extremely existential threat to the economy.

Another class of people we haven't mentioned yet are all those people who were thinking of making business investments in Canada over the next few years. Businesses think ahead. They have to make investments and they have to decide, I'm going to make an investment into Canada because I want to sell into the U.S. Given what Trump is saying, I'd be better off to make that investment in the U.S. I'd be better off making sure that my investment is within Fortress America. And I think that's another hard to quantify impact of what's going on here. So given all of that, Steve, how has our federal government responded to these threats of tariffs? Mr. Trudeau has been fairly diplomatic. He has talked about the need to understand how important both our economies

are to each other. And he's called for a Team Canada approach, meaning let's not start shooting each other. Let's all focus on trying to solve this. A fairly different reaction in Mexico, where Claudia Sheinbaum, the president, had pushed back a lot more strongly. She wrote a letter to Mr. Trump and pointed out that most of the illegal firearms in Mexico come from the United States and that they're not doing anything to control that. And much of the drug problems he's concerned about stem from the United States' inability to deal with their addiction issues. And she also threatened to retaliate in kind. So Mr. Trudeau has been far more hesitant to push back. And that could be related to, I guess, the perception that Mr. Trump doesn't have a very

high opinion of Mr. Trudeau and that Mr. Trudeau has to walk a very fine line in dealing with him. And Trudeau actually did get a chance to talk to Trump, didn't he, after this statement was made? So they did have a phone call, it sounds like? Yeah, the statement was posted around 6.45 in the evening on Monday. I think by 8.30, Mr. Trudeau was on the phone to Mr. Trump. And we're not privy to the entire conversation, but we have been, Mr. Trudeau told us that, in fact, he tried to reiterate how our economies are so intertwined. How the intense and effective connections between our two countries flow back and forth.

We talked about some of the challenges that we can work on together. It was a good call. I guess imply that, you know, you're going to be hurting yourself or shooting off your own foot by doing this. But my impression from talking to the government is they think this is going to be a long slog. Nothing's going to be solved quickly. They've been through this before and they're sort of planning for this, you know, massive lobby campaign at every level of the American government. Yeah. So this is obviously going to be spearheaded by the federal government here in Canada, but the provincial premiers have also spoken out about this since

the statement was made. What have they said, Steve? There's been mixed comments. I wouldn't say they're all acting like Team Canada. We had Francois Legault in Quebec agree with Mr. Trump that there's a major problem at the border and this needs to be fixed. Daniel Smith of Alberta echoed something similar. Doug Ford talked about how upset he was. It's like a family member stabbing you right in the heart. Mr. Ford has also announced an ad campaign that his government's going to be buying. I believe it's going to be broadcast on Fox News. And I guess now people are turning attention to exactly how do we demonstrate to the Americans how foolish this would be and how do we communicate that most diplomatically. And I think that's

what the subject of the Wednesday evening teleconference between the premiers and Mr. Trudeau will be all about. We'll be right back. Let's talk then a little bit about a potential plan or what Canada is doing to prepare for these tariffs. You mentioned Team Canada, Steve, which is the name kind of of the strategy the first time around and what the government seems to be doing again. What do we know about what this strategy entails? It's pretty simple. Everybody in the federal government reaches out to their contacts or makes contact with people in Congress. So with the House of Representatives and the Senate, they make contact with members of the incoming Trump administration. They make contact with governors of border states who are particularly invested in this because of the trade they do with Canada. They make contact with business leaders there.

And so people in the provincial governments, in fact, blow back on the American economy. You can't have a president who's been talking about lowering gasoline prices for Americans, then put a 25% tax on oil imports. That's not going to work. Mr. Trump also had been a major proponent of the Keystone Excel pipeline to bring more oil into the U.S., but a 25% tax on oil would destroy the business plan. So I would say 90% of your foreign policy in Canada is maintaining a good relationship with the U.S. Nothing else matters. It's a constant challenge to keep reminding the United States of how reliant they are. 31 U.S. states have Canada as their biggest export market.

There's going to have to be also more action, more effort taken to show that we're tightening our immigration policy and we're better policing the flow of fentanyl. CBS News had a major piece that ran in November about the Canadian border. And if you watch that piece, and I recommend everyone goes and watches that, it really paints a very dire picture of the Canadian border. It talks about 300 terror suspects being arrested at the northern border versus like a magnitude of about 30 at the southern border. It talks about how Canada has eased its rules for foreign visitors to no longer require that they demonstrate they have the funds to support themselves in Canada and no longer have to show a return ticket out of the country. So Americans are piecing together analysis of our immigration system and coming to the conclusion

that it lacks policies that are to blame for this massive increase in the numbers across the Canadian-U.S. border. 23,000 is far higher than it was several years ago. So it's one thing to say you're not Mexico, but it's another thing to demonstrate that you are taking action on problems that have risen by a number of magnitude in the last few years. Something else we saw last time was retaliatory tariffs. So Canada putting tariffs on U.S. goods that are coming into our country. Is it likely that we could see that happen again? If it comes to that, things are very bad. If it comes to that, that's the last thing you do.

This Team Canada approach, Steve, of course, this is headed by the liberals right now. But we know that we are facing a federal election sometime in the next year. And according to polling, the conservatives are actually likely to form the next government. So what if the conservatives and leader Pierre Polyev, what if they said about how they would handle this? Mr. Polyev offered sort of his response yesterday, he kind of wrapped it in basically a remarketing of policies he's championed for a long time. That is, he said the solution is to cut the carbon tax or take a tighter approach to immigration and so on. But what he said at the outset was he denounced the tariffs. He said he would impose retaliatory tariffs

if he was in power, if necessary. And he called them unjust. So he made all the right noises in terms of opposing them, but then went on to sort of suggest that Mr. Trudeau's Team Canada approach is more of a photo op than an effective response. He called the first ministers meeting a Zoom call and suggested that wouldn't be the way to go about it.

Mr. Pagliavera made an extraordinary statement in the House of Commons on Tuesday where he suggested that there's about 700,000 foreign students in Canada and he suggested when their study permits are up that they might also slip across the border illegally to the US, which was extraordinary because you're essentially giving Donald Trump more ideas on what to worry about. Beyond that, Mr. Pauly ever sort of fell back on more politicking. He talked about how we need a Canada first strategy because the prime minister

has broken everything. I think a lot of people might also be wondering how the U.S. can do this, because, of course, we have a free trade agreement with the U.S., right? Last time Trump was in office, he made a big deal about ripping up NAFTA, the previous deal. And now we have the U.S. MCA agreement between Canada, the U.S. and Mexico. So, I mean, could Trump actually do this, impose these tariffs that would actually go against our current agreement? They'll certainly be subject to lawsuits right away. Yes, they do go against their agreement, but he can use extraordinary measures that are often left untouched by the US presidency. In those cases, they will definitely spawn lawsuits or challenges suggesting that what he's doing is illegal. But he could make a lot of trouble for us

in the meantime. And just because he's not supposed to do something doesn't mean he won't try and that it won't throw the system into chaos. There has been some talk about replacing our current existing agreement with a bilateral U.S. agreement. So basically us cutting Mexico out of the treaty, just having a Canada-U.S. agreement. What have Canadian officials been saying about that? Well, first of all, we once did have a bilateral trade deal. Back in the 80s, we had what we called the CAFTA, the Canada-U.S. Free Trade Agreement. And then, of course, Mexico was added on.

I think in an ideal world, Canada might want to have that, but I don't think anybody thinks that that's going to happen because Mr. Trump seems to want to conflate our two countries and put us in the same pool. It's obviously up to the Americans to do that. Canadian officials at the provincial level, like Doug Ford in Ontario and Daniel Smith in Alberta, have talked about how they'd like to see this.

The federal government has sort of appeared to entertain it in comments by Ms. Freeland, but behind the scenes, what the government officials say is that they're not so much interested in carving out a separate deal as they are in trying to demonstrate to the Americans that they are concerned as well about Chinese government investment and Chinese state owned company investment and Chinese government backed investment in Mexico's auto sector. That is the genesis of a lot of the concerns about Mexico going back two or three years now that Chinese automobile makers and Chinese automobile parts makers are moving into Mexico, supported by Chinese government subsidies,

and attempting to then ship products into the NAFTA zone, into the trilateral zone, and evade tariffs. That is a problem which has been getting a lot of attention in the business pages of the paper, but probably hasn't been a front page story until recently.

And I think a lot of the comments the Canadian government's been making about musing about a separate deal is more about registering their concern about China's investments in Mexico. Mexico, by the way, plays this all down and says that this isn't a big deal. There's only a few auto parts makers and there's only one Chinese auto assembly plant. So that's the genesis of the discussion about a separate deal. Interesting. And of course, the USMCA is up for renewal in 2026. So Steve, this announcement of these potential tariffs, I wonder, could this just be a negotiation tactic ahead of the discussions on this deal? Yes, absolutely.

Although the actual agreement is about commercial relationships, it's about, you know, trade is not about fentanyl or illegal migration. But yes, everything is at opening salvo right now. There's no question that Donald Trump wants to reopen the USMCA in 2026 and extract even better deal for the Americans. And that is a major threat to Canada as well. And that's something we have to worry about. But at the core of his concerns is it includes Chinese investment in Mexico. Just lastly, before I let you go, Steve, whether or not these tariffs come into effect when Trump takes office, a simple social media post by him really has sent our country kind of scrambling to respond, right? And this sounds a lot like the last time he was in office when he used

what we often called Twitter diplomacy. I guess, do you think we've learned anything from that about, I guess, the best way to respond to statements and threats like this? That's a good question. We certainly don't use Twitter diplomacy back. And I think that one of the things Canada has learned over the last couple of decades is we no longer have a special relationship with the United States. We're no longer given pride of place in foreign relations. We are just one more special interest in the American political system. And so that means we have to work a lot harder than we might have 30 or 40 years ago. And so every time he does this, it's just more work for the Canadian government to remind Americans of how much our destinies

are intertwined and how much they would hurt themselves if they hurt us. Steve, so great to talk to you. Thank you for being here. You're welcome. That's it for today. I'm Mainika Raman-Wellms. Our producers are Madeline White, Michal Stein, and Allie 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.