A container is unloaded from the Manzanillo Bridge container ship at Global Container Terminals' Deltaport facility, at Roberts Bank, in Delta, B.C., on July 30.DARRYL DYCK/The Canadian Press
Canada finds itself in a trade war with the United States that it did not ask for and although Canadians overwhelmingly recognize and support the need for countervailing tariffs, those levies will make life less affordable for Canadians.
One solution Prime Minister Mark Carney could use to counter this loss of affordability and signal support for global trade is to eliminate selected tariffs on goods originating outside the United States.
Governments use tariffs to raise revenue and help domestic industries, which U.S. Donald President Trump has cited, at various times, as motivations for his actions. The third reason is to impose sanctions or to remedy trade disputes, which is Canada’s motivation for our countervailing tariffs.
If a Canadian tariff on a particular import serves one of these three purposes, the federal government should not remove it. That includes not only Canada’s countervailing tariffs on the United States, but also our tariffs on automotive imports, and the tariffs on dairy and poultry imports that make up the backbone of Canada’s supply management system on these commodities.
But Canada imposes tariffs on over 1,000 classes of goods that meet none of these criteria. They raise little revenue relative to their administrative cost; they do not protect a domestic industry, nor are they used as a countervailing measure. Most are the tariff equivalent of a vestigial tail, an evolutionary leftover that no longer serves a useful purpose.
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These tariffs do not raise much money for the government and they make life more expensive for families. They are on standard household items such as vacuum cleaners (8 per cent import tariff), brooms (11 per cent), ballpoint pens (7 per cent), combs (5.5 per cent) and toothbrushes (7 per cent). Others include tariffs on furnaces (7.5 per cent) and stoves (8 per cent), which raise the price of new homes.
Sometimes these tariffs raise little revenue because they are levied on relatively low-cost items, but often it’s because they are manufactured in countries with which Canada has a trade deal, so they can enter Canada tariff-free if they meet the conditions set out in the agreement.
Those conditions, however, are not straightforward and create compliance costs for businesses, since they require record-keeping and tracking to ensure that a high enough proportion of a good’s value originates in the country to meet the agreement’s requirements.
For example, an art kit for children may consist of a wooden box made in one country, paints made in another, and brushes made in a third, so determining whether this product can enter Canada tariff-free is no trivial task.
Complying with these rules costs Canadian companies, who pass those costs along to consumers. A 2014 study found that this red tape costs Canadian businesses roughly $20-billion a year, while Canadian governments at the time were collecting only $4-billion in tariff revenue each year.
If the Canadian government were to simply remove tariffs on these goods, regardless of their country of origin, then most of these compliance costs would disappear, and that 7-per-cent import tax that Canadians pay on toothbrushes that don’t qualify under one of Canada’s trade deals would be eliminated, lowering prices for Canadian families.
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It would also give Canadian importers more choice, since imports of these goods from the United States would no longer be cost-advantaged through the USMCA, so Canada could diversify its trading relationships.
While eliminating these tariffs feels like an extreme step, such arrangements are quite common in the guide that sets out Canada’s tariff rates. Mr. Carney would also not be the only prime minister to unilaterally eliminate some tariffs, since both Stephen Harper and Justin Trudeau removed tariffs on hundreds of classes of goods.
Selectively eliminating tariffs does not prevent Canada from imposing further countervailing tariffs on the United States, if they need to, nor does it force us to eliminate tariffs that serve a useful purpose.
However, it would offset price increases on some goods by lowering them for others, reduce compliance costs for Canadian businesses, allow Canadian importers to diversify further away from the United States, and send a strong signal to the world that Canada still believes in trade.
Mike Moffatt is the founding director of the Missing Middle Initiative and co-host of the Missing Middle podcast.