Latest updates
The political front
- Budget season is coming soon to provinces across Canada, and B.C. and Nova Scotia’s newly announced plans for a spending review and a reserve fund, respectively, signal a new era of restraint. The threat of tariffs from the United States has left governments preparing for lost revenue and relief measures for businesses.
- Washington’s threats have renewed Canada’s enthusiasm for tearing down internal trade barriers, and if you want an example of that red tape in action, look no further than the Centennial Bridge north of Moncton. Legal disputes between New Brunswick and an Ontario contractor have left $195-million project in limbo, and residents are worried when construction will resume.
The business front
- Small Canadian retailers fear for the future if the Trump administration follows through on suspending the de minimis exemption, which allows deliveries worth less than US$800 to cross the border duty-free. Without the exemption, the much larger U.S. market would be off-limits for many companies here.
- American mining know-how and Quebec’s hydro power helped make the Saguenay River a powerhouse of aluminum production, but the U.S. metal tariffs that take effect next month could change the region’s fortunes.
The personal finance front
- If you’re looking for made-in-Canada alternatives to the U.S. brands you’re used to, consult The Globe’s shopping guide for ideas. Using Statistics Canada data, we focused on the largest categories of imports that are likely to be affected by across-the-board tariffs, such as soap, soft drinks, chocolate and coffee.
- Now is a good time to rethink your portfolio’s mix of stocks and bonds, and perhaps buy stocks that are dipping, columnist Rob Carrick says – but he cautions against investors who think they can guess which sectors will succeed or fail in the trade war.
What is a tariff war? The basics
A tariff is a kind of tax that a country levies on its businesses when they import goods from abroad. A tariff war is where two or more countries increase tariffs for political ends. China and the United States are now embroiled in one on all goods, whereas Canada, Mexico and other U.S. trading partners are affected only in the steel and aluminum trade for now.
The steel and aluminum tariffs
U.S. President Donald Trump signed an executive order on Feb. 10 that taxes all steel and aluminum imports at a rate of 25 per cent, starting March 12. Canada sells more of those metals to the U.S. market than any other country, so is most affected. Canada is familiar with metal tariffs from the last Trump administration in 2018 and 2019, when it retaliated with tariffs of its own. So far, Prime Minister Justin Trudeau has stressed that Mr. Trump’s policies will hurt American consumers just as much as Canadians, but Ottawa will act with resolve if provoked. “Regardless of the level of tariffs that eventually the administration might move forward on, we will be equally unequivocal in our response,” he said on Feb. 13.
Reciprocal tariffs
On Feb. 13, Mr. Trump ordered his team to list imports that could be taxed with “reciprocal tariffs.” In theory, they would match any levies that another country imposes on U.S. goods, but Mr. Trump is also considering non-tariff measures such as Canada’s federal digital services tax or the dairy supply-management regime. The reciprocal tariffs would add on to the other tariffs on Canadian goods.
Tariffs that the U.S. and Canada have agreed to pause for now
The steel and aluminum tariffs are not as widespread as what Mr. Trump proposed on Feb. 1: Those would have put 25-per-cent tariffs on all Canadian goods except oil and gas, where the rate would be 10 per cent. Canada announced countertariffs that were more targeted on goods produced in Republican-run states, but still covered tens of billions worth of products. The first phase of tariffs was set to take effect on Feb. 4, but the two sides agreed to push back the date till March 4. (That came with some interim agreements on border and drug-trafficking issues; more on those later.)
If more tariffs end up taking effect, expect the cost of everyday goods to increase as retailers regroup, finding alternative suppliers and figuring out how to pass on extra costs. When this happened in the 2010s, whose effects were felt quickly (though not universally) after tariffs were introduced.
How tariffs actually work
Imagine that an import company in North Dakota wants to buy US$100 of Manitoba wheat. A 25-per-cent tariff requires them to pay an extra US$25 to the U.S. government. Broadly, that gives the Dakotans three options:
- Pay the US$25, and either lose profit or pass on extra costs to customers;
- haggle with wheat producers to lower the price; or
- buy from a different source with no tariffs.
What the North Dakotan company cannot do, if it is listed as the importer of record, is force Manitobans to pay the tariff themselves. Sometimes Canadian companies register as importers in the United States, for convenience’s sake when doing paperwork, but now they have many disincentives to do this. U.S. President Donald Trump says he’d create an “External Revenue Service” to get money from other countries, but there is no legal mechanism for it to do what he says it will do.
Many kinds of Canada-U.S. trade are more complicated than the wheat example we gave earlier. The countries are long used to sharing labour on assembling complex machinery. Consider a crankshaft, a vital part of the engine that powers a car or truck: It could involve six border crossings, with a new layer of taxes each time, which could trickle down to consumers who buy the finished vehicle.
Hit by Canadian
countertariffs
Hit by U.S. tariffs
1
CANADA
The metal casting
happens in Mexico
U.S.
MEXICO
2
CANADA
The crankshaft
travels to Canada
where it is refinished
U.S.
MEXICO
3
CANADA
It then travels to
the U.S. to be
further finished
U.S.
MEXICO
CANADA
4
U.S.
In Canada it’s
incorporated in
a truck's engine
MEXICO
CANADA
5
U.S.
MEXICO
Then it travels to
a truck assembly
plant in the U.S.
CANADA
6
U.S.
MEXICO
In Canada it is
painted and the
trims are added
CANADA
7
U.S.
MEXICO
Then it goes back
to the U.S. to be
sold to consumer
MURAT YÜKSELIR /
THE GLOBE AND MAIL, SOURCE: APMA
Hit by Canadian countertariffs
Hit by U.S. tariffs
1
CANADA
The metal casting
happens in Mexico
U.S.
MEXICO
2
CANADA
The crankshaft
travels to Canada
where it is refinished
U.S.
MEXICO
3
CANADA
It then travels to
the U.S. to be
further finished
U.S.
MEXICO
CANADA
4
U.S.
In Canada it’s
incorporated in
a truck's engine
MEXICO
CANADA
5
U.S.
MEXICO
Then it travels to
a truck assembly
plant in the U.S.
CANADA
6
U.S.
MEXICO
In Canada it is
painted and the
trims are added
CANADA
7
U.S.
MEXICO
Then it goes back
to the U.S. to be
sold to consumer
MURAT YÜKSELIR /
THE GLOBE AND MAIL,
SOURCE: APMA
Legend
4
Hit by U.S. tariffs
Hit by Canadian countertariffs
2
6
In Canada it’s
incorporated in a
truck's engine
The crankshaft travels
to Canada where it is
refinished
In Canada it is
painted and the trims
are added
7
CANADA
Then it goes back
to the U.S. to be sold
to consumer
U.S.
1
5
MEXICO
3
Then it travels to a
truck assembly plant
in the U.S.
The metal casting
happens in
Mexico
It then travels to
the U.S. to be
further finished
MURAT YÜKSELIR /
THE GLOBE AND MAIL,
SOURCE: APMA
Which provinces are most exposed to tariffs?
Alberta, Ontario and New Brunswick normally do brisk business with the Americans on oil and gas, manufactured goods and wood products, respectively. But no part of Canada is truly immune from a trade war. Nationally, the United States far surpasses all other international trade partners, so making up lost income from other sources is a challenge. In the meantime, provinces and the federal government are working to lift barriers on interprovincial trade.
Will Canada go into a recession?
It takes months to officially declare something a recession – that is, a period where a country’s gross domestic product declines for two fiscal quarters in a row. But talk of a potential recession spooks investors and employers quickly, which can lead to layoffs and the shutdown of businesses. That process has already begun in the manufacturing and auto sectors. It’s unclear whether a wider tariff war will come after all, or how long it might last, but if it does, many economists say a recession is a likely outcome.
Mr. Trump's first executive orders have brought sweeping crackdowns on immigration, the U.S.-Mexico border and foreign and trade policy.Evan Vucci/The Associated Press
What does Trump actually want from Canada?
This is not the first time Mr. Trump’s protectionism has threatened Canada and Mexico. In his first administration, he tore up the North American free-trade agreement, claiming it was unfair. That led to an exchange of tariffs on steel and aluminum, among other goods. But this tariff war is different: Mr. Trump is talking about making Canada a “51st state” and reviving a style of imperialism from the late 19th century. Mr. Trudeau has told business leaders he believes the annexation talk is genuine, and aimed at Canada’s supply of rare minerals.
The cited reason for Feb. 1’s tariffs was fentanyl, a deadly drug whose trafficking Mr. Trump considers to be a national emergency. That’s how he justifies making broad economic policy without Congress: He’s invoked 1977’s International Emergency Economic Powers Act, normally used for responding to national security threats. Fentanyl trafficking does exist, but not on the scale Mr. Trump claims. U.S. statistics show years of steady decline in seizures at the northern border. And some of Mr. Trump’s numbers relate in part to one big drug bust in Washington state that had no known connection to Canada at all.
To get Mr. Trump to pause tariffs for 30 days, Mr. Trudeau said he and Mr. Trump agreed Canada would:
- Appoint a “fentanyl czar,” a post Mr. Trudeau has given to Kevin Brosseau, a former deputy commissioner of the Mounties.
- Co-operate with the United States on a joint anti-drug strike force.
- Designate drug cartels as terrorist groups, as Mr. Trump did in one of his early executive orders.
- Have 10,000 personnel at the Canadian border. Mr. Trudeau said those personnel “are and will” be deployed, which left ambiguous whether it would be larger deployment than what already exists.
How Canada can respond if a tariff war heats up again
Federal
Countertariffs are only one way Ottawa can act against Mr. Trump’s policies. Limiting export permits for critical minerals is another option the Trudeau cabinet has discussed, but not yet implemented. Procurement – the rules for where the government buys its goods and services – could also be tightened up to favour Canadian contractors over U.S. ones.
Provincial
Procurement and alcohol sales are two main weapons in the provincial arsenals. Ontario Premier Doug Ford, for instance, said he would bar U.S. bidders on government contracts and proposed scuttling a $100-million satellite-internet deal with Starlink, a tech company run by Trump ally Elon Musk – though he paused those plans after tariffs were put on hold. Provinces with liquor boards pulled American beer, wine and spirits from store shelves ahead of the Feb. 3 pause, though that began to reverse during the 30-day tariff truce.
By industry
Every sector of Canada’s economy, from banks to small businesses, is girding itself for difficult times ahead. Here’s what some of them have done so far.
Steel making: Canadian sector facing ‘doomsday’ scenario with tariffs
Manufacturing: Tariffs will halt North American auto production and trigger layoffs: Linamar
B.C. liquor stores removed the top five U.S. brands from its stores in response to the tariff threat.Ethan Cairns/The Canadian Press
U.S.-grown oranges and juice, like these ones at a grocery store in Hamilton, are also on the Canadian tariff list.Carlos Osorio/Reuters
‘Buy Canadian’ basics
Canadians are answering the call to buy more Canadian goods, supporting people and businesses that might lose access to U.S. markets. But when you’re checking the sticker to see which goods are Canadian, the wording is important.
Businesses aren’t required to put “made in Canada” labels on their wares, but when they do, the Competition Bureau has strict standards for who can make those claims:
- Made in Canada: This means at least 51 per cent of the direct costs of making the product came from a Canadian source, and the “last substantial transformation” of the product took place here. Baking a loaf of bread, for instance, is the final step in turning ingredients that may have come from somewhere else into the thing for sale. If the ingredients did come from abroad, especially for a food product, a “made in Canada” label is required to disclose that.
- Produced in Canada: Same as “made in Canada,” but the percentage cost is at least 98 per cent.
One place to search for Canadian-made products is Made in CA, run by digital-media consultant Dylan Lobo. Tyler Campbell of Uxbridge, Ont., set up the website in 2018, when he was 17 and Canada faced a similar wave of buy-local enthusiasm during the first Trump administration.
With reports from Erica Alini, Mike Hager, Ian Bailey and The Canadian Press
Commentary and analysis
Rob Carrick on personal finance
The personal finances of the nation need to be on an economic war footing. Here’s the path forward
A half dozen tariff-fighting ideas for your investments in these uncertain times
The new national conversation: Are you cancelling the U.S.?
The politics of trade
Campbell Clark: Trump loves to leave his neighbours hanging on his whim
Adrienne Clarkson: Under Trump, the rules of the game have completely changed