By imposing retaliatory tariffs, we are essentially playing the game on Trump's terms.Christopher Katsarov/The Canadian Press
Daniel Dufort is president and chief executive officer of the Montreal Economic Institute.
In the speech he delivered at Davos earlier this year, Prime Minister Mark Carney rightly observed that the relationship between Canada and the United States had changed for good. This observation, while painful, is nonetheless realistic, at least for the foreseeable future.
U.S. President Donald Trump is a crude and divisive figure. His sweeping attacks on Canada and its sovereignty are as despicable as they are counterproductive. But beyond the posturing, he is not the only one who views the economy and international trade strictly as a zero-sum game in which everyone tries to protect their own interests.
Gavin Newsom, one of the favourites for the Democratic Party’s nomination for the 2028 presidential election, reminded us of this, albeit unwittingly. As part of a Canadian media tour aimed at limiting the damage inflicted by Mr. Trump, he correctly pointed out that the Biden administration had in no way reversed the framework of the previous Trump administration’s trade policy. On the contrary, it had even strengthened it with its new “Buy American” initiative.
While it seems unlikely that a potential Democratic presidency would repeat Mr. Trump’s transgressions, Mr. Newsom admitted that he could not comment on whether such an administration would cancel the latest round of tariffs.
We must therefore prepare for the following possibility: That Mark Carney was right, and this relationship will remain altered, regardless of who occupies the White House.
No one is coming to save us.
Our response must take these facts into account if it is to be effective and sustainable in the long term. While it is entirely understandable that tempers are running high and that a majority of our fellow citizens are feeling a strong desire for revenge, a response based on retaliatory tariffs will not take long to rebound to our collective detriment.
Let us look at this purely objectively: This response assumes that Mr. Trump, when backed into a corner by any damage arising from countertariffs, will call off the tariff threat in order to save face before, or soon after, the midterm elections. In short, it is based on the assumption that the U.S. President is a rational actor – something I must admit I have my doubts about.
Countertariffs also come with several major drawbacks. Some of these are of a rather practical nature: 1) A tariff is a tax imposed on our own citizens; 2) Our retaliatory measures are limited by the size of our economy compared with that of the United States; 3) Tariff barriers undermine the competitiveness of our own businesses by keeping them afloat artificially.
There is another argument I feel the need to raise: Countertariffs promote a world view and an approach to trade that are the hallmark of Donald Trump. He has held esoteric beliefs about international trade for nearly 40 years. For decades, he has advocated for a trade policy in which trade is hampered by isolation and increased protectionism. By imposing retaliatory tariffs, we are essentially playing the game on his terms.
Let us imagine for a moment that our brinkmanship fails, that Mr. Trump does not back down, and that he gets replaced by a new administration that maintains his protectionist follies. Will we then abolish our retaliatory tariffs without receiving anything in return? Even if this were the right approach, you will forgive me if my doubts remain. In a sense, Mr. Trump will have gotten exactly what he wants: A trade relationship in tatters and a hundred tiny wrenches in the works.
The same logic applies to subsidies and loans to businesses. Unless this trade war is very short-lived, companies will need to break into new markets, find new opportunities and even launch new products to ensure their continued viability. Financial support alone will not be enough.
A much better solution is to look to the future with optimism, to place our trust in our entrepreneurs and in our ability to build a strong and resilient economy. To do this, however, we must first make our country more attractive to capital.
We need drastic reductions in both our corporate and capital gains taxes – bold changes that make Canada the very best place to invest. We need finally to get serious about free trade between provinces, about getting rid of costly and unnecessary internal barriers to commerce. We need to forge new partnerships with other countries that also want a world in which trade is free.
And we need the courage of our convictions. Prime Minister Carney tells us that he wants to build at a pace not seen for generations. Let’s get to work then. Time is running short.