President-elect Donald Trump has shaken the Canadian political establishment with his recent post threatening to enact a 25 percent tariff on all goods coming into the U.S.
The provincial premiers, already hearing earfuls from worried business leaders, immediately called for a meeting with Prime Minister Justin Trudeau to answer questions about how Canada was planning to respond.
The USMCA free trade deal was due to be reviewed in 2026. As such, both Canada and Mexico have had teams working behind the scenes strategizing the best way to handle the review. Trump has just thrown a spanner in the wheels of those plans, by essentially threatening to rip up the trade agreement his own administration negotiated.
Until recently, the question in Canada was whether or not to pursue a renewal of the USMCA trilaterally, or whether Canada might be better off going it alone and aiming to secure its place in a bilateral agreement with the U.S. Certainly, reviewing an agreement is preferable to starting anew, but now Canada may not get a say in the matter. If Trump does impose tariffs, USMCA is effectively dead in the water.
Trump has threatened to impose the tariffs ostensibly in retaliation for Canada and Mexico’s failure to secure their parts of the border from fentanyl traffickers and illegal migrants. While Canadian immigration policy has indeed led to a wave of migrants streaming across the northern U.S. border, it’s at orders of magnitude smaller than those seen at the southern border. However, Trump’s vow to deport millions of illegal migrants has Canada bracing for a massive influx of people seeking to escape deportation.
Will Trump practice what he preaches and lock down the U.S. border to prevent illegal migrants from streaming into Canada? It is doubtful.
Trump is also right to be angry about illegal drugs entering the U.S., but a majority of fentanyl seized at the border is coming from Mexico. In fiscal 2024, Customs and Border Protection seized 43 lbs. of fentanyl at the Canada-U.S. border, compared to a whopping 21,000 lbs. at the U.S.-Mexico border.
Additionally, Canada, which has not been spared from the ravages of the opioid epidemic, receives massive volumes of contraband from its southern neighbor. In addition to hard drugs, Canada is a black market haven for American guns and contraband tobacco products that now outsell legal tobacco in Canada.
So what is Trump really trying to accomplish by lumping in Canada with the Mexico tariff threat?
Trump’s policy by tweet has not always come to fruition, but it often has the desired effect: fear. Negotiating when your opponents are afraid is classic Trump.
That is not to say he does not mean what he says — Trump was clear throughout the campaign that he will be slapping tariffs on foreign imports to pay for his proposed tax cuts. But already, a wedge is forming between Canada and Mexico. A united Canada-Mexico negotiating block against the U.S. would make things more challenging when reviewing the USMCA, and Trump likes to negotiate from strength.
That said, there is reason to hope (for Canada, at least) that things will shake out favorably if Canadians can keep their cool. Canada’s productivity has slipped to the bottom of the G7, putting it in a somewhat weaker position to ride out a tariff fight.
But Canada still has leverage heading into a negotiation. Canadian electricity flows through the lightbulbs in millions of American households. If Canada were to take a short vacation from exporting heavy crude oil southward, it would be catastrophic for the American oil refineries that rely on Canada’s feedstock to function. A hiccup in the supply of Canada’s natural gas exports would drive up the price of gas in the U.S., leading to an increase in transportation and home heating costs.
Canada also has reserves of rare earth minerals necessary for making everything from EV batteries to cellphones to F-35 parts. Even the U.S. Department of Defense has invested in Canadian critical minerals to find sources outside the Chinese monopoly. Diversifying the critical minerals market weakens China’s stronghold, therefore threatening investment in Canada’s mining sector, is counterintuitive to America’s long-term strategic and national security goals.
A reciprocal 25 percent tariff on U.S. goods imported into Canada would significantly threaten American businesses. Canada and the U.S. have deeply intertwined manufacturing sectors. U.S.-Canada trade accounted for a trillion dollars in 2023. At least 34 states count Canada as their No.1 trading partner. Trump’s proposed tariff may already jeopardize jobs on both sides of the border by creating a climate of uncertainty for investment.
Canada faces a predicament, but it has been accepted by provincial and federal ministers that a Team Canada approach is the best way to maintain strength.
Whether Canada can unite behind the deeply unpopular Prime Minister Justin Trudeau remains to be seen. Trudeau, who recently rebuffed calls from his own caucus to resign over his abysmal polling numbers, has been attempting to position himself as a veteran negotiator who has already been through a round of trade negotiations with Trump and preserved the Canadian free trade interests in the American market. Many of the premiers, however, don’t see him in this light. Alberta Premier Danielle Smith said, “I very much (would) like to take a Team Canada approach, but I can tell you that Justin Trudeau hasn’t made it easy.”
One thing is sure: Trump has not yet been sworn in and is already testing Canada’s position. How the country’s government reacts will set the tone for ongoing negotiations.
Jamie Tronnes is executive director of the Center for North American Prosperity and Security, a project of the Macdonald-Laurier Institute. She is based in Washington.
