On November 25, 2024, two months ahead of his second inauguration, President-elect Trump announced  that 25% across-the-board tariffs would be applied to Canada and Mexico on January 20, 2025, and remain in effect until the United States’ two neighbors successfully stopped “drugs, in particular Fentanyl, and all Illegal Aliens” from entering the country across their shared borders.

Canada’s initial response was disjointed. The federal government mused about a bilateral trade deal with the United States (jettisoning Mexico). Leaders of Canada’s federal opposition parties and of some sub-national governments reacted belligerently or hysterically. The Prime Minister recovered, convening the premiers virtually, then travelling to Florida on November 29 for dinner with the incoming President and key Cabinet-designates. Both Trump’s and Trudeau’s accounts of the meeting suggest that the discussion was productive. All signals suggest that within the stipulated time frame, Canada will initiate upgraded measures to “strengthen the border.”  

Then, stunningly, on December 16, Chrystia Freeland, Canada’s Deputy Prime Minister and Minister of Finance, resigned from Cabinet hours before she was to present the Government’s Fall Fiscal Update in the House of Commons. Recent tension between Freeland and Trudeau had been reported. She noted in her resignation letter that the incoming US administration “is pursuing a policy of aggressive economic nationalism, including a threat of 25% tariffs.”  Citing the need to take that threat seriously, Freeland emphasized the need to keep Canada’s “fiscal power dry, so we have the resources we may need for a coming tariff war."

As January 20 approaches, Canadians will hold their collective breath, waiting to see if this set of initiatives sufficiently met Donald Trump’s current needs and avoided the application of tariffs against goods from Canada); whether they only partially did so, meaning some lesser tariff is applied (perhaps the 10% threatened during the election campaign); or whether the new President proceeds with his threatened 25% tariff, messaging to the world that he may be unsatisfiable.  

It’s nearly irrelevant that such tariffs would violate the USMCA/CUSMA/T-MEX agreement (replacing NAFTA) that President Trump, during his first term, described as the “best trade deal ever.”  It appears that the new US administration will not feel bound by the rule of law.  

Equally irrelevant is the amateur psychoanalysis provoked by Trump’s November 25 declaration. Is he looking for leverage for the upcoming – 2026 – review of USMCA?  Is he preemptively transferring responsibility to two foreign governments for resolving the issue of illegal immigration that he committed to fix?  Is he signaling to his new Cabinet that he, not they, will set policy? Is this a power grab, as it’s not fully established in law that the President can set tariff rates without Congressional approval – especially in the face of a treaty approved by Congress? Is he determined to proceed with tariffs regardless of how those who are threatened respond, either because he needs the revenue to afford renewal of tax cuts from his first term or because he really is determined to force industries selling into the US to move their production facilities there? Is this, effectively, about President Trump wanting to set the agenda in each of Canada and Mexico – to ensure that both governments embrace his (latest) priority as their own?  Is this a test case – in which he’s probing for degrees of nations’ submissiveness to tariff threats before embarking on their wider application post-inauguration? Is it about humbling the longest-serving G7 leader, with whom he had a rocky relationship from 2017-2021, and putting the new Mexican President on notice that he’s expecting more compliance than he received from her predecessor?

None of the above? Some? All?  No one can ever know for sure.  What almost certainly can be known is that this threat of tariffs won’t be the last. In fact, it could well become a repeating pattern. After all, in a Detroit campaign speech then-candidate Trump said: “I can make anybody do anything through the use of tariffs.” 

Any Canadian pitch to be exempted from tariffs because of a historic “special relationship” or because the country is the United States’ so-called closest friend and ally is unlikely to deter President Trump. After all, spending 1.4% of GDP on defense instead of the 2% committed by 2024 gets Canada derision, not consideration. Canada will cultivate strong personal relationships with cabinet secretaries and senior officials and enjoy many advantages in doing so. But in an era of America First, special pleading by foreigners is likely to elicit a dismissive “you have your country’s interests at heart; we have America’s.”

Should Canada resign itself to four years of unceasing drama and apprehension that their economy could easily be tipped into recession by a mercurial President Trump?

Canada’s evident will to make its border with the US more secure (i.e. invest significant additional resources in deterring migrant or fentanyl flows southward to the US) absolutely is part of the best answer. As on Acid Rain in the late 1980s, and border measures designed to reassure Americans after 9/11, Canada should always strive to have clean hands. Canada should never leave reasonable Americans to conclude that their northern neighbor is casually ignoring important US interests.  

But central to diminishing, or even eliminating, repeated threats of new tariffs is ensuring that the Administration and Congress hear from American business and union leaders that applying tariffs against Canada would run counter to US interests.  The corollary of being each other’s best customer is that literally millions of Americans would be seriously hurt by such a policy. Canada is well-placed to mobilize those voices.

Who in the United States might care? Here are just a few examples:

• Oil refiners and their customers, especially in the mid-west and Rocky Mountain states. Canada supplies more than 20% of the oil consumed in the United States. Midwest refineries receive more than two-thirds of their oil feedstock from Canada. In the Rocky Mountain states, it’s more than 90%. There are two important considerations: refineries in those regions were built precisely to process Canadian oil (much of which is ‘heavier’ than the light crude generally produced in the United States), and they receive their feedstock via pipelines coming directly from Canada. Refineries and pipeline networks, both of which cost many billions of dollars to build, were constructed on the principle that North America benefits from having a heavily integrated energy sector. This doesn’t create vulnerabilities for the United States – it reduces the prices that consumers pay. President-elect Trump and the Prime Minister discussed at Mar-a-Lago the KXL pipeline, which Trump in his first term had authorized but which was subsequently rejected by President Biden. Reporting after the dinner indicated that Trump and Trudeau were “aligned” in support of the pipeline – L pipeline, which, by itself, would have increased Canadian oil exports to the US by approximately 20%. The bottom line: in heavily Republican Mountain States and in ‘swing’ mid-western states, a 25% tariff on Canadian oil exports would cause the pump price of gasoline, jet fuel, and other distillates to rise.

• Nuclear power generators and the customers for the electricity they produce. Nuclear power plants generate nearly 20% of US electricity. More than a quarter of the uranium used at those facilities comes from Canada, the United States’ largest international supplier. If you add a 25% tariff to Canadian uranium, the price paid by US consumers goes up. Canada also sells electricity directly to the United States, mostly to New England, New York, the Midwest, the northern Prairie states (North Dakota, where designated Interior Secretary and Energy Czar Doug Burgum is currently Governor, is a big purchaser from Manitoba Hydro), and the Pacific Northwest. The cost increase to consumers for that imported electricity grows by precisely the size of the tariff applied against Canadian exports. Homeowners, retail and office buildings, manufacturers, data center operators, the cryptocurrency industry – all major consumers of electricity – aren’t likely to be thrilled at the cost increases being forced upon them by the federal government.

• Auto manufacturers and their employees. In 2023, the total value of automotive trade (fully assembled vehicles and parts) between the United States and Canada exceeded $110 billion – with the United States enjoying a slight surplus in the sector. There essentially has been free trade in the automotive sector between the two countries since the mid-1960s. For that reason, in each successive generation the industry has become more fully integrated. The sector gave rise to the “we make cars together” mantra – with vehicle parts, on average, travelling back-and-forth across the border six or seven times before a fully-assembled car emerges from an assembly plant. Adding a tariff to the costs United States-based assemblers must bear will significantly increase the price of the vehicles they sell. That means fewer vehicles bought and fewer vehicles made.  “Autoworkers for Trump 2024” has already expressed its grave concern. United Auto Workers members and workers at non-unionized plants in the south who source many of their parts from Canada could face layoffs due to tariffs on this sector

• The home building industry and home buyers. Canada is the United States’ largest supplier of forest products, accounting for 40% of all imports.  Both countries face a housing affordability crisis. Governments, generally, have wanted to keep house price inflation down (an entire generation of young Americans and Canadians despairs at maybe never being able to buy a home). Jacking up the price of lumber and of other construction materials like cement by imposing a tariff on imports from Canada will contribute to house price inflation. While consumers, as a class, are never easy to mobilize, the building products industry, the development industry, and the real estate sector all have reason to impress on legislators and the Trump Administration that tariffs on Canada are an unaffordable new burden. The biggest impact will fall on rapidly growing states such as Texas, Florida, Georgia, North Carolina, Arizona, and Nevada, several of which every four years confirm their status as electoral battlegrounds.

• Producers and consumers of agricultural fertilizer. Canada is the world’s largest producer of potash, a major ingredient in fertilizer. In fact, Canada supplies nearly 90% of US potash imports. A tariff on potash purchases from Canada directly affects the bottom line of US fertilizer producers and their customers. Canada also sells many agricultural products directly to the United States; for example, it supplies nearly 30 of all US beef meat imports – the largest single international source. Anyone shopping for steaks, ground beef or other cuts at Walmart, Kroger, Publix, Food Lion, Save A Lot, IGA, Safeway or other US grocery stores should be concerned at the cost impact of tariffs on their weekly food bill: 25% tariffs on Canada and Mexico could rekindle food price inflation at 2021-23 levels. Retailers, who’ve faced considerable backlash over recent years, will struggle to see how these government-induced cost increases help their businesses or their clients.

• Critical minerals. The Chinese overwhelmingly dominate the supply of critical minerals and rare earths that are essential components to the automotive and technologies sectors, among others. Starting late, the United States and Canada are now closely cooperating to develop their respective capabilities. The Pentagon has even invested in Canadian mining operations, seeking to accelerate development and production of some of these scarce minerals. A 25% tariff on imports from Canada only sets back this integrated effort, prolonging China’s near monopoly

• The trucking industry and its employees. The tariff that President-elect Trump proposes to apply to Canada compares to Great Depression levels, which led to the collapse of global trade. During his first Administration, President Trump applied 25% tariffs on steel imported from Canada and 10% on Canadian aluminum sales to the United States. Those were illegal, giving Canada cause to retaliate. It applied tariffs on steel, aluminum, and other products sold by US companies to Canada. It is a reasonable assumption that Canada would have no choice but to retaliate this time as well. Because President Trump proposes a universal tariff of 25%, the extent of the probable ‘trade war’ would be greater this time. The $773 billion two-way goods trade relationship – one of the world’s biggest, in which, if oil is stripped out, the United States consistently enjoys a trade surplus with Canada – could decline precipitously. Significantly reduced volumes of goods moving back and forth across the US-Canada border means significantly less haulage for the trucking industry and their employees, many of whom are members of the Teamsters Union.

Fully integrated US-Canada supply chains exist in dozens of sectors and hundreds of industries. Components made in one or the other country routinely comprise part of the final product coming off the assembly line in the other country. The effect of this integration has been to keep prices down in both countries, enhancing the global competitiveness of US and Canadian firms.

This is not the first time that Canada’s network in the United States has found itself challenged to inform Americans of the magnitude of the cross-border economic relationship and the extent to which the United States benefits from it. Because everything works so well most of the time, Americans have little reason to think about how the relationship benefits their interests. But when it is threatened, as it is now, the messaging is likely to resonate that much more.

The task is clear. Every US industry (whether owned by Americans, Canadians, or other foreign investors in the US), their employees, and through them their consumers, that counts on Canada for inputs and price stability, needs to be alerted to the impact on their operations of tariffs against Canada. Every US industry that exports to Canada, their employees and many of their service providers, needs to be alerted to the impact on their operations if, as should be expected, Canada retaliates should tariffs be introduced against goods from Canada. Business owners, managers, union leaders, municipal and community leaders, must be encouraged, in their own interest, to contact their member of Congress, their senator, state legislators, the White House, cabinet secretaries – all decision-makers, really – to share their concerns about the imposition of tariffs against the United States’ best customer. Local media, think tanks, and influencers must be kept up to date by the Canadian network, with details provided to them of likely job losses, price hikes, maybe even shortages that would result from the proposed tariffs. 

The Prime Minister, his Cabinet, other officials and Canada’s impressive Embassy in Washington, DC, will continue to reach out to counterparts and US national decision-makers. So will Canada’s premiers, many of whom have excellent relationships with neighboring governors. Canada’s business community has a large role to play in educating both their US customers and suppliers. But only if the new Administration hears directly from Americans in all fifty states whose livelihoods will be negatively affected by the proposed tariffs, will there be much chance of nipping this wholly counterproductive tariff idea in the bud, and of economic sanity prevailing for the next four years.