United States President Donald Trump's on-again, off-again tariffs have shaken up relations between Canada, Mexico and the U.S. After imposing sweeping tariffs on Canadian and Mexican goods on March 4 , Trump has paused tariffs on some Canadian goods until April 2.
Author
- Subhadip Ghosh
Associate professor, MacEwan University
Canada immediately retaliated on March 4 , imposing 25 per cent tariffs on $30 billion worth of U.S. imports, with plans to expand to $155 billion after consultation. The second round of retaliatory measures is on hold until the pause is up.
This move escalated tensions into a full-scale trade war between the two countries. In a trade war, no country wins, as Prime Minister Justin Trudeau aptly noted . Yet governments impose tariffs - essentially import taxes - because they protect domestic industries from foreign competition.
While tariffs can provide temporary relief to certain sectors, studies have shown that the cost to consumers outweighs the benefit to industries . In addition, the industries that seek protection are typically well-organized, politically influential and relentless in lobbying for trade barriers.
Canada's decision to retaliate was less about responding in kind, and more about pressuring the America's most influential export industries. Canada aimed to target politically influential export sectors - like Florida's orange industry - which may then pressure Washington to negotiate with Canada for a bilateral tariff reduction, pitting U.S. exporters against import-competing industries .
A well-designed retaliation strategy should target politically influential U.S. industries while minimizing harm to Canadian consumers . The question is, how well did Canada execute its response?
What Canada got right
Canada largely focused significantly on U.S. products with domestic or non-U.S. alternatives. For example, tariffs on U.S. dairy could be substituted by Canadian producers, bourbon can be replaced with Canadian or European whiskey and Florida orange juice can be replaced by Brazilian imports.
The tariffs were designed to hit industries in Republican strongholds and swing states to increase domestic opposition to Trump's trade war. Florida (orange juice), Wisconsin and Georgia (dairy and poultry) and Kentucky (bourbon) were all targeted . This mirrored the EU's 2018 successful retaliation strategy against the U.S. , which targeted similar products.
Early signs suggest this approach had an impact, as Trump later paused tariffs linked to the Canada-U.S.-Mexico Agreement (CUSMA) , likely due to Republican pushback.
Instead of escalating the trade war aggressively, Canada's response was measured. It matched U.S. tariff levels but didn't go beyond them , which helped maintain diplomacy and positioned Canada as a responsible player in the dispute.
Additionally, by delaying tariffs on industrial goods like machinery and chemicals, Ottawa likely gave Canadian firms time to source alternatives, softening supply chain blows and minimizing its impact on domestic industries.
Areas for improvements
While Canada's response was largely strategic, some missteps increased the burden on its own consumers.
Tariffs on everyday items like toilet paper, clothing and kitchenware risk raising prices for Canadian households. Similarly, tariffs on plastic building materials could inflate renovation costs, indirectly harming Canada's expensive construction sector.
Canada exempted U.S. crude oil and natural gas from tariffs, possibly to protect integrated supply chains. However, while this may have been necessary to protect North America's integrated energy supply chains, it also meant that Canada left a significant leverage point on the table, as it could have put pressure on Republican states like North Dakota.
Additionally, Canada excluded major agricultural products like soybeans and pork, which could have hurt farmers in infuential Iowa. Additionally, while Canada imposed some restrictions on U.S. pork imports , it refrained from targeting soybeans - an agricultural product that China leveraged against the U.S. in 2018 to politically influential states like Iowa.
Another potential shortfall was the largely bilateral nature of Canada's response. Co-ordinating with other trading partners also affected by U.S. tariffs, such as the European Union partners and Mexico, could have amplified pressure by presenting Washington with a united front.
Recalibrating Canada's tariff response
At its core, Canada's trade war with the U.S. is akin to standing up to a schoolyard bully. While resistance is necessary, taking on the fight alone is risky. Instead, Canada should collaborate with other nations also eager to challenge U.S. protectionism. There have even been calls for Canada to join the EU .
Canada's retaliation was effective in sending a political message by hitting Trump's base where it hurts most, like Wisconsin's dairy farms, Harley Davidson motorcycles, Florida's orange juice and Kentucky's bourbon distilleries. However, by casting too wide a net and a flat 25 per cent tariff on almost all consumer goods, Canada risks causing unnecessary harm to its own consumers.
With Trump pausing tariffs on some Canadian goods until April 2 , Canada now has an opportunity to refine its strategy. Recalibrating its approach - by dropping consumer essentials and focusing on high-impact sectors - could enhance its effectiveness while reducing collateral damage to domestic consumers.
By refining its approach and seeking stronger international alliances, Canada can ensure that its trade policies not only counter U.S. protectionism but also benefit both consumers and exporters in the long run.
Subhadip Ghosh does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
