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Faced with tariffs imposed by U.S. President Donald Trump, some countries have, so far, responded by turning the other cheek, and not retaliating with their own duties.
Canada, however, continues to hit back in the trade war with its neighbour to the south. But it also raises the question of whether Canada absorbing the blows from U.S. tariffs, while painful, might be preferable to the overall economic damage from a full-scale trade conflict.
It’s an issue, perhaps unsurprisingly, on which economists have varying views. Some say Canada has no choice but to retaliate, even if imposing tariffs on U.S. goods will increase prices for Canadians. But others suggest those moves may have little impact on the U.S.
Werner Antweiler, associate professor and chair in international trade policy at the University of British Columbia, says Ottawa was right to return fire.
“Retaliation is actually necessary, even though it’s harmful to our own economy, because it makes prices higher for Canadian consumers and businesses,” he said.
But Pau S. Pujolas, an associate professor or economics at McMaster University, says he believes Canada doesn’t need to spend its time “fighting tariff with tariff.”
Finance Minister Dominic LeBlanc outlines the federal government’s plan to slap tariffs on $29.8 billion worth of American goods to hit back against U.S. President Donald Trump after he imposed tariffs on Canadian steel and aluminum.
Instead, he says the economy would be better helped by removing interprovincial trade barriers and untangling the red tape hampering some of Canada’s trade agreements with other countries
“I would frankly say, look, let the Americans shoot themselves in the foot, let them destroy their firms … that rely on Canadian products, let them destroy all that. And let’s move on.”
‘Compelled to retaliate’
Like any tariffs, Canada’s retaliations against the U.S. fall almost entirely on Canadian consumers, and will hurt the economy here, not there, says Trevor Tombe, an economics professor at the University of Calgary.
“That’s not to say we should or shouldn’t do them, just that the decision to retaliate needs to be firmly based on achieving non-economic objectives,” such as in the political arena, he said.
He sees retaliation as “more of a political action to shape the conversation, narrative and public relations campaigns,” against, in this case, the Trump administration.
They have limited ability to actually affect the U.S. economy, he said in an email to CBC News.
And yet, Canada said Wednesday it would retaliate with tariffs on $29.8 billion worth of American goods after Trump imposed tariffs on all imported steel and aluminum. That’s in addition to the tariffs on $30 billion worth of American goods already levied after Trump’s initial tariffs last week.
Meanwhile, Ottawa has threatened tariffs on an additional $100 billion worth of U.S. goods if Trump pushes through his reciprocal tariffs on April 2.
“I think Canada feels compelled to retaliate,” because it relies on the U.S. market for the goods Trump has targeted, said Peter Morrow, associate professor of economics at the University of Toronto’s Munk School of Global Affairs and Public Policy.
“Roughly 90 per cent of Canadian steel or aluminum exports go to the U.S. So Canada really can’t sit around and do nothing. Canada has to sort of develop some bargaining position.”
However, some countries like the United Kingdom, Australia and Mexico that have refrained from retaliation have their own reasons for not yet pulling the tariff trigger, Antweiler says.
The U.K., for example, is looking for new post-Brexit trade arrangements and, importantly, a free trade deal with the U.S., he says. As well, the government of Prime Minister Keir Starmer is looking for some kind of agreement with the U.S. regarding Ukraine, so it does not want to alienate Trump.
Foreign Affairs Minister Mélanie Joly appealed directly to Americans, urging them to speak with their elected officials at all levels and ask them to send a message to the White House to end the trade war.
Starmer has said that while all options are on the table, he would take a “pragmatic response” and not hit back after the U.S. slapped tariffs on steel and aluminum imported from any country.
In Trump’s first term, Australia was able to get an exemption from tariffs he imposed in 2018 and may be hoping to get another to this latest round, Antweiler says.
Derek Holt, vice-president and head of capital markets economics for Scotiabank, adds that countries like the U.K. and Australia are not in the same situation as Canada.
“It’s easier for Australia and the U.K. to turn the other cheek because they have much less at stake, given less exposure to trade with the U.S.,” he said in an email.
About one-fifth of U.K. exports go to the U.S and a good chunk of that is financial services, he says. Australia’s exports to the U.S. are only about four per cent of its total exports.
Diplomatic inroads
Although Trump made Canada and Mexico the targets of his initial tariffs, Mexican President Claudia Sheinbaum appears to have made diplomatic inroads with him, while relations have remained frosty between Canada and the U.S.
Ottawa has a free trade agreement with Washington and has remained in talks — attempting a diplomatic solution — as this crisis developed, says Sylvanus Afesorgbor, an associate professor at the University of Guelph in the department of food, agricultural and resource economics.
That’s why Afesorgbor believes retaliation is “very justified.”
“There’s nothing we can do anymore,” he said. “We’ve exhausted every medium of negotiation. So we are pushed to the wall.”
But he cautions that officials need to be careful not to just blanket all U.S. goods with tariffs.
“You have to be very selective,” Afesorgbor said, adding that he believes federal officials have the experience to tariff imports that can be replaced by Canadian producers.
For example, it would be a really bad idea to slap tariffs on U.S. imports that Canada really relies on, like pharmaceuticals, Morrow says. However something like U.S. liquor actually makes sense.
“Canadians won’t be that much worse off. They can still have plenty of options. But U.S. producers now have lost sales,” he said.
“Sometimes it’s super obvious. But other times it’s actually pretty difficult to say ‘OK, what are the goods where we have other options? And what are goods where the U.S. relies on us for a market?’ “
So far, Canada is doing it right, not imposing blanket, dollar-for-dollar tariffs, but focusing instead on areas that can minimize harm to Canadian consumers, Antweiler says.
“We’re looking at sectors where we have easy domestic substitutes, or third country substitutes,” he said. “It’s all really focused on harm reduction.”
