U.S. President Donald Trump signed proclamations for a new volley of tariffs on Canada, with the 50 percent levies set to hit around 5 percent of Canada’s total trade with the United States.
The new tariffs would apply to Canadian alcohol, dairy products, cement, and other products including hockey sticks. The United States said this comes in response to Canada’s supply management system for dairy products, provincial bans on U.S. alcohol, and counter-tariffs on automotive parts.
Economists say that the new tariffs could impose harms on the Canadian economy, impacting many manufactured and consumer goods but largely sparing the country’s natural resources sector.
Some also say that the tariff threats could be meant to spur Ottawa to provide concessions in trade negotiations, and may not end up being implemented if the two sides reach an agreement in time.
The latest tariffs affect nearly US$20 billion worth of Canadian goods. BMO Financial Group’s chief economist Doug Porter told The Epoch Times that this represents nearly one percent of Canada’s GDP that could be affected, calling it “a very significant hit.”
The New Tariffs
Trump’s new tariffs, to come into force on Aug. 19, would be enforced under Section 338 of the Tariff Act of 1930, which allows for tariffs against countries that discriminate against the United States. Canada–United States–Mexico Agreement (CUSMA)-compliant goods would not be exempt.
These tariffs would be in addition to the current 10 percent blanket tariff on all goods from Canada, excluding those covered under the CUSMA exemption, under Section 122, and sectoral tariffs on automotive parts, steel, aluminum, copper, and lumber. Canadian exports of crude oil, critical minerals, and potash would be exempted from the new tariffs, as will motor vehicles and auto parts.
The National Bank of Canada calculated that the new tariffs would apply to just 5 percent of Canadian imports to the United States. Canada’s overall tariff rate would rise from 5 percent to about 7.5 percent, with most goods still entering the United States tariff-free, according to the bank.
Di Matteo said that as the new tariffs will not apply to oil, gas, potash, and critical minerals, they will have “little to no effect” on Canada’s natural resource exports. He pointed out that natural resources make up about 40 percent of Canada’s exports to the United States.
Di Matteo said the tariffs that would apply to chemicals, plastics, electronics, alcohol, and “hockey sticks, of all things” make up a relatively small portion of Canada’s exports to the United States. There is only one major hockey stick manufacturer left in Canada, located in Brantford, Ontario, with most being made in China, Pakistan, and Vietnam.
Impact on Trade Negotiations
Trump’s latest tariff threats come as trade negotiations between Canada and the United States continue.Ahead of the July 1 deadline to review CUSMA, Canada and Mexico called for the trade agreement to be renewed for 16 years, while the United States said it doesn’t want to renew the agreement “in its current form.” As the deadline passed without a formal renewal, CUSMA will remain in force with annual reviews by the three countries until 2036, unless it is extended or one party withdraws.
The new tariffs also come days after Trump suggested that the cost of Canadian wildfire smoke in the United States should “be added to the tariffs Canada is currently paying.” Trump indicated on July 21 that the latest tariffs were not being imposed in response to the Canadian wildfires.
In justifying the latest tariffs, U.S. Trade Representative Jamieson Greer told CNBC on July 21 that Canadian provinces banned the sale of U.S. liquor in government-run liquor stores, and that Ottawa capped the number of automobiles that could be shipped to America tariff-free and continued with its dairy supply management tariffs.
“Of all the countries who retaliated against the United States, one was the People’s Republic of China, and the other was Canada,” Greer added.
While Ottawa has made other concessions over the last year—such as repealing its Digital Services Tax and asking the broadcast regulator CRTC to review its decision to triple its tax on large online streamers—Greer recently said Canada should not get “credit for doing something bad and then undoing it.”
Di Matteo said the latest tariffs are “definitely a bargaining move” to extract leverage in negotiations with Canada.
Porter also said that it remains to be seen whether Trump will actually follow through with the latest tariff threat.
“It’s pretty clear that it’s being used as a tactic to try to force Canada into changing on those other sectors,” Porter said. “I don’t think the U.S. really wants to impose these tariffs, but I’m not sure that’s an easy decision for Canada to make to back down on.”
Aaron Ettinger, a political science professor at Carleton University who specializes in Canada–U.S. relations, said Trump could be attempting “escalation to de-escalate” and gain concessions from Ottawa before ultimately backing away from the tariffs.
Ettinger said he believes the Canadian government will “try to drag this out as long as humanly possible,” which has been one of Ottawa’s trade strategies since the 1980s. But he said the latest tariff threats could also lead to Canada conceding when it comes to supply management, the sale of U.S. alcohol, and limits on automotive shipments.
“But at the same time, who knows if he’s actually going to stick with it? If he does, I wouldn’t be surprised. If he doesn’t, I would also not be surprised,” Ettinger said.
