Canada, Mexico can avoid tariffs with border action, Trump’s pick for trade czar says

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Donald Trump’s administration may be prepared to relent on threatened 25-per-cent tariffs against Canada and Mexico, the President’s nominee to lead the Commerce Department said just days before these trade measures were expected to take effect.

Canada and Mexico are toughening border policies in response to Mr. Trump’s demands, Howard Lutnick said at his Senate confirmation hearing Wednesday.

“And as far as I know, they are acting swiftly. And if they execute it, there will be no tariff. And if they don’t, then there will be.”

But Mr. Lutnick also signalled that the United States is still contemplating a separate plan for “across-the-board tariffs” against many countries to restore what he called “reciprocity, fairness and respect” in trade relations with Americans.

“My way of thinking, and I discussed this with the President, is country-by-country. Macro. Let America make it more fair. We are treated horribly by the global trading environment.”

The comments offer the strongest indication to date that Mr. Trump has tied the 25-per-cent tariffs to border issues, even as his administration conducts a much broader review of U.S. trade that involves new scrutiny of the United States-Mexico-Canada agreement.

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Mr. Trump and the White House have repeatedly said they intend to impose tariffs on Canada and Mexico on Saturday, prompting a renewed effort by the Canadian government to seek relief that included a multiday visit to Washington by Foreign Minister Mélanie Joly, who met Wednesday with Secretary of State Marco Rubio.

Bank of Canada Governor Tiff Macklem warned on Wednesday that “a long-lasting and broad-based trade conflict would badly hurt economic activity in Canada.”

Mr. Lutnick indicated that Canada could expect significant trade demands from U.S. negotiators in the months to come, including greater access to Canadian dairy markets.

The 25-per-cent Feb. 1 threat is “not a tariff, per se,” he said, describing it instead as a lever designed to prompt action from Canada and Mexico on issues related to fentanyl and illegal migration.

Mr. Lutnick’s remarks were the first to suggest that the White House has taken note of Ottawa’s promises to do more on the border, including by spending an additional $1.3-billion over six years on drones, canine units and chemical detection units. Defence Minister Bill Blair has also said it is possible for Canada to reach its NATO defence spending target of 2 per cent of GDP by 2027.

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A federal government official said Prime Minister Justin Trudeau spoke at length with Mr. Lutnick when they met in Poland Monday during a commemoration of the 80th anniversary of the liberation of the Auschwitz death camp. The official, whom The Globe and Mail is not naming because they were not authorized to speak publicly on these matters, said Mr. Lutnick’s message about tariffs was very similar to his Senate confirmation hearing remarks Wednesday, including about how the Feb. 1 deadline was really about border measures.

That’s why Canada’s messaging this week is focused on showcasing its new border measures.

Ms. Joly, after meeting with Mr. Rubio, couldn’t predict whether Canada will be spared tariffs Saturday. “Am I in the head space of President Trump? No, of course not,” she said, adding what Canadians can do is ensure people around the President hear Canada’s warnings about the devastating effects of a trade war with a major trading partner.

“The ultimate decision maker is President Trump. So I’m staying until Friday here in Washington, making sure that I’m meeting as many people as possible,” Ms. Joly said. She has appealed in part to old loyalties, gifting Mr. Rubio a copy of The Good Allies, a book by Canadian military historian Tim Cook about relations between Canada and the U.S. during the Second World War.

In a note, Ms. Joly wrote: “Marco, an example of what we can achieve when we work together.”

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Public Safety Minister David McGuinty, who will also travel to Washington this week, said he is confident Canada can resolve threatened tariffs by the U.S., but offered no assurances this might occur before Mr. Trump’s deadline.

Canada “should take Mr. Lutnick’s comments seriously” and “take them at face value,” the minister told reporters in Ottawa.

“I remain hopeful we’re going to be able to solve this. We’ve been doing it for 150 years together. I don’t see why we can’t do it now.”

It remains unclear whether Mr. Trudeau will be able to speak to Mr. Trump before Saturday. The Prime Minister’s Office did not respond to a question on whether Mr. Trudeau has another call or meeting lined up with Mr. Trump.

Mr. McGuinty listed other measures Canada is taking to fight illegal production and distribution of the opioid fentanyl. In addition to deploying two new Black Hawk helicopters and new surveillance over the border, Canada is launching a crackdown to better control and regulate precursor chemicals that can be used to make fentanyl. It’s in negotiations with the United States on a joint North American “fentanyl strike force” to “target and hit organized crime harder and faster,” including new resources and staffing. Ottawa’s also deploying new X-ray machines and scanners to detect drugs crossing the border.

Canada has vowed swift retaliation against U.S. tariffs. As The Globe and Mail first reported, Canada’s first round of retaliatory tariffs would cover $37-billion of U.S. imports. These would be the least painful countertariffs because they would cause the least economic damage to Canadians, officials said. Depending on how hefty initial U.S. tariffs on Canada are, Ottawa would then move to tariffs covering another $110-billion or so of American goods.

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Alberta Premier Danielle Smith, who argues Canada must strive to meet Mr. Trump’s demands to avoid tariffs, said the country should name a “border czar” to work with the President’s appointee to the same position in the United States.

“The one thing that we can do this week, in just the next couple of days, to have the best chance to avoid tariffs, is to show clear and unequivocal action to secure the border,” Ms. Smith said. “This should start with the appointment of a Canadian border czar to work with the new American border czar to jointly crack down hard on fentanyl and illegal migrants.”

Canada’s border appointee should be a “general,” she said.

“That’s the kind of person we need. Someone who understands military operations, who understands deployment, who understands the seriousness with which we have to take this issue.”

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Laura Dawson, executive director of Future Borders Coalition, said that Mr. Lutnick’s response “suggests that Canadian efforts to create and promote a credible border plan are making an impact on Trump’s inner circle.”

“However, what the commerce secretary nominee perceives and what Donald Trump actually does may be quite different.”

Canada, too, has argued that the U.S. actually enjoys a trade surplus if Canadian energy exports are stripped from the math.

For Canada, it’s about “trying to show the numbers and build the case,” said Beth Burke, chief executive officer of the Canadian American Business Council.

For example, she said, roughly 70 per cent of U.S. imports from Canada are inputs used by domestic businesses, rather than finished goods. It is important for businesses and governments from across Canada to make that case, she said.

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The task of lobbying the White House has been complicated by the fact that many of Mr. Trump’s key cabinet positions remain unconfirmed. But the President has also re-entered office with a new determination to stamp change on the U.S. economy and its relationship with those outside its borders.

“This is a situation where we don’t know what the playbook is. I think part of the effort of his administration is to rewrite the world order,” said Gitane De Silva, who was Alberta’s senior representative to the U.S. during the first Trump administration.

“We have to just acknowledge that the renegotiation of [the North American trade deal] has started already,” said Ms. De Silva, who is the founder of GD Strategic, an advisory company. And, she added, “I’m not convinced there’s a way to fully avoid tariffs on Canada.”

Indeed, securing greater access to the Canadian market for U.S. dairy exports will be “a key focus of this administration,” Mr. Lutnick said Wednesday, presaging more difficult battles to come on future trade talks.

Canada, he said, “treats our dairy farms horribly. That’s got to end.”

It’s time for countries that rely on the U.S. economy to “start to respect us – and respect us now,” he said.

With a report by Carrie Tait