Patricia Goff is professor of political science at Wilfrid Laurier University and the Balsillie School of International Affairs.
Canada is on the brink of an economic crisis now that the Trump administration has imposed 25-per-cent tariffs on most Canadian exports to the United States, with lower tariffs expected on oil and gas. Federal and provincial officials responded quickly, with tariffs of 25-per-cent on $30-billion worth of U.S. products going into effect Tuesday, and another 25-per-cent on $125-billion dollars worth of products following in 21 days.
While the political appeal of such a response is undeniable, Canada must tread carefully. Retaliatory tariffs carry significant risks. And while the response so far shows resolve and unity, we can’t forget to ask ourselves a crucial question: Will striking back truly serve our long-term economic interests, or will it deepen the damage?
The arguments in favour of striking back have been made loudly and often in recent weeks, but they obscure the reasons for caution. First, we’re told that retaliatory tariffs influenced Donald Trump’s trade decisions during his first term. The evidence for this is murky at best, and past outcomes offer no guarantee of future results.
Second, it’s frequently noted that 34 U.S. states sell more goods to Canada than to any other country and that Canada is the largest export market for American goods. True enough. But these statistics fail to capture the broader economic reality: Canada is far more vulnerable to a trade war than the United States.
Canada’s trade-to-GDP ratio is 67 per cent; the U.S. trade-to-GDP ratio is closer to 27 per cent. We send 77 per cent of our exports to the United States and roughly 17 per cent of U.S. exports come to Canada. Which is all to say: the U.S. is less dependent on trade, and considerably less dependent on Canada as an export market. Americans are simply less vulnerable to our tariffs than Canadians are to theirs.
One of the biggest challenges with retaliatory tariffs is knowing when to lift them. Do we remove them if the Trump administration backs down? That’s unlikely. The executive order Mr. Trump signed on Feb. 1 includes a dire warning: The President “may increase or expand in scope the duties imposed” if Canada retaliates. Without a clear exit strategy, retaliation risks becoming an open-ended confrontation that could do more harm to Canada’s economy than the tariffs themselves. The 21 days before the next phase of Canadian tariffs offer the government a critical opportunity potentially to pull back before it’s too late.
Even before the executive order, the risks of retaliatory tariffs were clear. Mr. Trump’s pick to chair his Council of Economic Advisors, Stephen Miran, recently published a paper titled A User’s Guide to Restructuring the Global Trading System. One of his ideas stands out: “With respect to other nations, if the Trump Administration merges national security and trade policy explicitly, it may provide some incentives against retaliation,” Mr. Miran writes. “For instance, it could declare that it views joint defence obligations and the American defence umbrella as less binding or reliable for nations which implement retaliatory tariffs.”
We know that our tariffs on the U.S. can have negative economic consequences on us. But Mr. Miran’s proposal to intertwine trade policy with national security and defence spending raises an entirely different set of risks – ones we may be unwilling or unprepared to bear. Washington has already signalled its interest in this approach by linking these 25-per-cent tariffs to issues around drugs and border security.
If retaliatory tariffs are too risky, what’s the alternative? Diversification has long been seen as the answer to reducing our reliance on the U.S. dating back to the 1971 Nixon Shock, when a 10-per-cent surcharge on Canadian exports spurred then-foreign minister Mitchell Sharp to propose what became known as the “third option.” More than 50 years later, that strategy has yielded limited results. While trade agreements have opened new markets, they haven’t been enough to persuade exporters to look beyond the convenience and profitability of the U.S. market. But as American economist Robert Koopman has argued, the incentive structure may be shifting. That alone makes diversification an option worth revisiting, with a greater sense of urgency than before.
The unavoidable truth is that Canada’s best defence is to strengthen its own economy. With a federal election looming and the country’s most populous and second-most prosperous province already in campaign mode, the political climate is hardly conducive to the kind of thoughtful, long-term planning this moment demands. Nonetheless, we should abandon petty politics, recognize the gravity of the moment, and mobilize serious minds to focus on building a resilient, competitive and self-sustaining economy and society.
The real question isn’t “What will Donald Trump do next?” It’s “What will Canada do to secure its future?”