What Trump’s threatened 50% tariffs could mean for Canadian businesses, according to experts

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On Aug. 12, political reporter Adrian Morrow and reporter Jason Kirby answered reader questions about U.S. President Donald Trump’s threatened tariffs on Canada, which products could be affected and how they could affect Canadian businesses.

U.S. President Donald Trump is threatening to impose new 50-per-cent tariffs under Section 338 of the Depression-era Tariff Act on a range of Canadian goods on Aug. 19, in an escalation of the trade war against Canada.

There are more than 500 product categories that could be targeted by the new tariffs. The tariffs would cover items directly related to trade irritants, such as provincial boycotts of American alcohol and Canada’s supply-managed dairy system, as well as other seemingly random products.

Readers asked what will be affected by the tariffs, what impact it will have on Canadian businesses and whether Canada can trust Trump to keep his word. Here are some highlights from the Q&A.

What will be affected by the new tariffs?

What’s going to be affected the most by these new tariffs? Is there anything I should buy or sell now before the changes hit?

Adrian Morrow: Trump’s latest threatened tariffs would hit Canadian dairy products, alcohol and a grab-bag of other items, including antiques, honey and electronics.

So, yes, if you’re a Canadian sitting on a stockpile of whisky (or honey or certain types of antiques) that you’re hoping to export to the U.S., you might consider doing it this week to avoid the risk of your American purchasers turning you down after Aug. 19 so they can avoid paying Trump’s tariff.

Will the 50 per cent tariffs be added to the existing tariffs?

Morrow: Yes, a Canadian good that is on the Aug. 19 tariff list and is currently subject to Trump’s “forced labour” tariff, because it trades outside of the USMCA, would be subject to both the new tariff and the forced labour tariff.

In practice, most Canadian goods trade under USMCA and aren’t subject to the forced labour tariff. So most of the goods that would get hit on Aug. 19 would only face that new tariff.

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Could workers face layoffs if 50 per cent tariffs come in?

Jason Kirby: It’s hard to say. On the whole, the new Section 388 tariffs would affect just 5 per cent of Canada’s exports to the U.S. – around $20-billion worth of goods. But within those sectors that are targeted, a 50 per cent tariff would be devastating. Especially for those companies that depend on the U.S. for most of their sales. Would that lead to immediate layoffs? It’s easy to see some job losses happening in the short term. Canada’s job market has been remarkably resilient in the face of the tariffs to date, but a 50 per cent duty is not something any company can absorb.

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What Canadian goods do Americans rely on Canada for? If we reduce or stop exporting to them, how would this be advantageous to them?

Kirby: Trump has repeatedly said the U.S. doesn’t need anything from Canada, yet when drawing up the list of products to target with the Section 338 tariffs, the administration avoided hitting oil and potash. Those are both products Canada supplies in large volumes to the U.S. and that U.S. consumers need. So the easy answer is to slap export taxes on those goods until the U.S. comes to its senses.

But from the outset, that has been a political non-starter, since Alberta and Saskatchewan (where most of the oil and the potash comes from) are dead against export restrictions, and Canada’s economy is heavily reliant on those exports. That option is off the table. Still, there’s no question Canadian negotiators are making the case to the U.S. that the country is heavily dependent on Canada in some sectors. Whether that message sways Trump is another matter.

Ottawa discussing trade concessions with U.S. in return for some tariff relief, sources say

Negotiating with the U.S.

Why would Canada hand over another long list of concessions to an administration that has repeatedly shown that agreements are only binding when it suits Washington?

Morrow: You’re absolutely right that Canada has made concessions to Trump and received nothing in return. Trump has also shown that he has no regard for the deals he signs: Most products are supposed to trade tariff-free under the USMCA, which he himself signed in his first term, but this didn’t stop him from putting tariffs on steel, aluminum, autos and forestry products.

What Carney seems to be calculating is that the economic pain Trump is already inflicting via those tariffs, and the further pain he’s threatening to inflict with the Smoot-Hawley tariffs, is so bad that it’s better to negotiate a bad deal with him, even if he may later break it, than to not have a deal.

Put simply, Carney has clearly calculated that Canada accepting some U.S. tariffs and making a bunch of trade concessions is better than Canada getting hit by even higher tariffs.

Is there anything regular Canadians can do and have done to fight back against these tariffs? Do the boycotts work?

Kirby: The fact the Trump administration has railed so hard against the provincial boycotts of U.S. alcohol is a good indicator that the boycotts do get noticed. But of course, the alcohol bans are one of the stated reasons behind the 338 tariffs, so they come with risks. Likewise, the travel boycott has blown a big hole in the U.S. tourism sector since Canada has historically been the largest source of international tourists to the U.S. It’s much harder for the U.S. to retaliate against Canadians collectively avoiding travel to the U.S., though I wouldn’t be surprised if the White House tried at some point.

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Why did Trump start his tariffs in the first place? It seems it’s a lose-lose move, and former presidents have been okay with trade pacts.

Morrow: You’re right, it is a lose-lose move and most economists would agree with you. But Donald Trump believes that tariffs are good economic policy. Both he and Commerce Secretary Howard Lutnick have cited the U.S. economy of the 1890s and early 1900s, when a tariff wall kept out foreign competition and large amounts of industrial manufacturing were done domestically, as a model to aspire to. There isn’t enough room to explain why, again, most economists would disagree with that approach, but it’s how Trump thinks.

Trump also uses tariffs, or the threat of them, as a tactic to push other countries to agree to his terms. But it’s telling that even the resulting deals still contain tariffs. What Trump has gotten in his deals over the past year, and what he wants from Canada, is for other countries to accept U.S. tariffs, while lowering trade barriers of their own, in exchange for him not putting in even higher tariffs. Trump has described himself as a “tariff man” and that is 100 per cent accurate. It’s the main thing he wants, under the belief that it will bring manufacturing back to his country.

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Even if we did strike a deal with the U.S., can Trump be trusted to keep his word, or are we going to be back here within a year?

Morrow: Trump has shown that he does not keep his word on trade deals: By the terms of USMCA, which he signed in this first term, none of the tariffs he’s imposed on Canada should have been imposed. It’s quite possible that, if he agrees to a deal with Canada this month, he would renege on that, too.

Carney has clearly decided that, despite this risk, he would rather get a deal that (even for a limited time) reduces U.S. tariffs than have tariffs remain at their current levels and have Trump add new ones. In exchange, he’s considering conceding a long list of U.S. trade demands.

This is effectively the approach that every other country (with the exception of China) has taken to dealing with Trump. We’ll see if it’s better than the alternative of preserving negotiating leverage and fighting an escalating trade war.

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Canada and free trade

Why hasn’t Carney’s promise of free trade between provinces happened yet?

Kirby: Governments have been talking about tearing down interprovincial trade barriers for decades, and finally last year it seemed like the U.S. trade war was the kick in the pants the country needed. But while there’s been some headway made, progress is slow. There are a lot of vested interests in keeping barriers in place. Take the simple goal of freeing the flow of direct-to-consumer alcohol sales across provinces. It adds up to a tiny amount, but it’s hugely symbolic. The provinces largely blew through their first deadline and when most of the provinces eventually signed on to a deal, it’s come with layers of red tape and additional mark-ups applied by provincial liquor boards. That’s a pyrrhic victory for internal trade.

What does it mean that Trump didn’t renew the USMCA? Is Canada headed for a trade free-fall?

Kirby: In opting not to extend the USMCA for an automatic 16-year period, Trump didn’t sign the deal’s death warrant. Instead, this has triggered a mandatory annual review process that will take place each year until 2036 or until an extension is agreed on. So no, Canada is not headed for a trade free-fall.