Canada’s tariff war journal

Latest updates

The political front

• The United States, having given tech companies a break from its regime of tariffs, might do the same for auto manufacturers because they “need a little bit of time” to change supply chains, President Donald Trump hinted on Monday.
• President Xi Jinping is touring Southeast Asia this week as China, faced with the steepest U.S. tariffs of any country, courts allies and export markets to weather the trade war. “Protectionism will lead nowhere,” Mr. Xi said Monday in Vietnamese media before his arrival in Hanoi.

The business front

• The U.S. tariffs have already begun to twist global supply chains in new directions, as manufacturers pause shipments to the United States, directing those shipments elsewhere or idling production in non-U.S. plants.
• Globe and Mail readers have a lot of pressing questions about tariffs, trade diversification and the energy sector, so we asked several of our Report on Business journalists to answer them.

The personal finance front

• The Globe has updated its shopping guide for made-in-Canada products, focusing on the largest categories of tariff-affected imports such as soap, soft drinks, chocolate and coffee.
• How will tariffs affect your stock portfolio, your mortgage, your retirement plans? Personal finance columnist Rob Carrick and consumer affairs reporter Mariya Postelnyak answered some common questions about what you can do (or hold back from doing) with your money.

What is a tariff war? The basics

A tariff is a kind of tax that a country levies on its businesses when they import goods from abroad. A tariff war is where two or more countries increase tariffs for political ends. At first, President Donald Trump’s tariff wars this year concentrated on major trading partners – Canada, Mexico, China and the European Union – but April 2’s “Liberation Day” trade announcement has drawn every country into the fight, in one way or another.

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‘Reciprocal’ tariffs: Enacted and then lowered on April 9

U.S. imports from every country now face a 10-per-cent baseline tariff, except Canada and Mexico (for goods that comply with the CUSMA free-trade agreement, which most of their exports do) and China, which must pay 125 per cent (except electronics, which are exempt for now but might be taxed at a separate rate later). Mr. Trump originally laid out a complicated array of “reciprocal” tariffs for each country, ranging from zero to 50 per cent. These actually weren’t that reciprocal because the underlying math had more to do with trade balances than taxation. In any case, he backed down from those tariffs within hours of their implementation on April 9, but only for 90 days.

Across-the-board tariffs: Enacted March 4

On March 4 the United States, citing national security reasons (more on that later) started taxing all Canadian and Mexican goods at 25 per cent, except Canadian energy and critical minerals, where the rate is 10 per cent. Later, the United States lowered the rate to 10 per cent for potash, then exempted all products that comply with USCMA rules of origin. The exemption is now indefinite, so for the time being, many products will continue to trade tariff-free or at low tariff rates.

Auto tariffs: Enacted on April 3

The auto industry originally got a reprieve from across-the-board tariffs that targeted only Canada and Mexico, but then on March 26, Mr. Trump signed a new executive order that would levy 25 per cent on all U.S. imports of automobiles and auto parts. Finished vehicles shipped under CUSMA will be taxed based on their non-U.S. content. Meanwhile, auto parts from Canada and Mexico will continue to trade tariff-free until Washington can figure out a system to calculate U.S. content.

Steel and aluminum tariffs: Enacted March 12

Mr. Trump signed an executive order on Feb. 10 placing tariffs on all steel and aluminum imports starting March 12. The 25-per-cent tariff applies to both raw metals and finished products, although there is a carve-out for finished products that use U.S.-sourced metal. Canada sells more steel and aluminum to the U.S. market than any other country, so is most affected. Canada is familiar with metal tariffs from the last Trump administration in 2018 and 2019, when it retaliated with tariffs of its own, as it is doing again now.

How tariffs actually work

Imagine that an import company in North Dakota wants to buy US$100 of Manitoba wheat. A 25-per-cent tariff requires them to pay an extra US$25 to the U.S. government. Broadly, that gives the Dakotans three options:

• Pay the US$25, and either lose profit or pass on extra costs to customers;
• haggle with wheat producers to lower the price; or
• buy from a different source with no tariffs.

What the North Dakotan company cannot do, if it is listed as the importer of record, is force Manitobans to pay the tariff themselves. Sometimes Canadian companies register as importers in the United States, for convenience’s sake when doing paperwork, but now they have many disincentives to do this. Mr. Trump says he’d create an “External Revenue Service” to collect money from other countries, but there is no legal mechanism for it to do what he says it will do.

Many kinds of Canada-U.S. trade are more complicated than the wheat example we gave earlier. The countries are long used to sharing labour on assembling complex machinery. Consider a crankshaft, a vital part of the engine that powers a car or truck: It could involve six border crossings, with a new layer of taxes each time, which could trickle down to consumers who buy the finished vehicle.

Hit by Canadian

countertariffs

Hit by U.S. tariffs

1

CANADA

The metal casting

happens in Mexico

U.S.

MEXICO

2

CANADA

The crankshaft

travels to Canada

where it is refinished

U.S.

MEXICO

3

CANADA

It then travels to

the U.S. to be

further finished

U.S.

MEXICO

CANADA

4

U.S.

In Canada it’s

incorporated in

a truck's engine

MEXICO

CANADA

5

U.S.

MEXICO

Then it travels to

a truck assembly

plant in the U.S.

CANADA

6

U.S.

MEXICO

In Canada it is

painted and the

trims are added

CANADA

7

U.S.

MEXICO

Then it goes back

to the U.S. to be

sold to consumer

MURAT YÜKSELIR /

THE GLOBE AND MAIL, SOURCE: APMA

Hit by Canadian countertariffs

Hit by U.S. tariffs

1

CANADA

The metal casting

happens in Mexico

U.S.

MEXICO

2

CANADA

The crankshaft

travels to Canada

where it is refinished

U.S.

MEXICO

3

CANADA

It then travels to

the U.S. to be

further finished

U.S.

MEXICO

CANADA

4

U.S.

In Canada it’s

incorporated in

a truck's engine

MEXICO

CANADA

5

U.S.

MEXICO

Then it travels to

a truck assembly

plant in the U.S.

CANADA

6

U.S.

MEXICO

In Canada it is

painted and the

trims are added

CANADA

7

U.S.

MEXICO

Then it goes back

to the U.S. to be

sold to consumer

MURAT YÜKSELIR /

THE GLOBE AND MAIL,

SOURCE: APMA

Legend

4

Hit by U.S. tariffs

Hit by Canadian countertariffs

2

6

In Canada it’s

incorporated in a

truck's engine

The crankshaft travels

to Canada where it is

refinished

In Canada it is

painted and the trims

are added

7

CANADA

Then it goes back

to the U.S. to be sold

to consumer

U.S.

1

5

MEXICO

3

Then it travels to a

truck assembly plant

in the U.S.

The metal casting

happens in

Mexico

It then travels to

the U.S. to be

further finished

MURAT YÜKSELIR /

THE GLOBE AND MAIL,

SOURCE: APMA

Which provinces are most exposed to tariffs?

Alberta, Ontario and New Brunswick normally do brisk business with the Americans on oil and gas, manufactured goods and wood products, respectively. But no part of Canada is truly immune from a trade war. The United States far surpasses all other trade partners abroad: Finding new ones will take time. Domestically, Canada’s governments are working to lift barriers on interprovincial commerce. Nova Scotia, for instance, tabled a bill to allow more out-of-province goods to be sold locally, and bring in workers from the rest of Canada with less recertification.

Will Canada go into a recession?

It takes months to officially declare something a recession – that is, a period where a country’s gross domestic product declines for two fiscal quarters in a row. But talk of a potential recession spooks investors and employers quickly, which can lead to layoffs and the shutdown of businesses. That process has already begun in some sectors. A full-blown trade war could weaken Canada’s economy permanently, the Bank of Canada’s Governor warns. Economists at Canada’s banks agree that the future could be dire, but also an opportunity to restructure, shaking off policies that hinder future growth in a more protectionist global economy.

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What does Trump actually want from Canada?

This is not the first time that MAGA protectionism has threatened Canada and Mexico. In his first administration, he tore up the North American free-trade agreement, claiming it was unfair. That led to an exchange of tariffs on steel and aluminum, among other goods. But this tariff war is different: Mr. Trump is talking about making Canada a “51st state” and reviving a style of imperialism from the late 19th century. Before his exit from the prime ministership, Justin Trudeau said he believes the annexation talk is genuine, and wrecking Canada’s economy is Mr. Trump’s first step to achieve that goal.

The cited reason for the across-the-board tariffs is fentanyl, whose trafficking Mr. Trump considers to be a national emergency. That’s how he justifies making broad economic policy without Congress: He’s invoked 1977’s International Emergency Economic Powers Act, normally used for national security threats. Fentanyl trafficking does exist, but not on the scale Mr. Trump claims, and not in the places he claims. In law-enforcement terms, “northern border” includes areas hundreds of kilometres away from the actual border, so some of Mr. Trump’s misleading numbers relate to drug busts with no connection to Canada at all.

To get Mr. Trump to pause tariffs until March 4, Mr. Trudeau said he and Mr. Trump agreed Canada would:

• Appoint a “fentanyl czar,” a post Mr. Trudeau has given to Kevin Brosseau, a former RCMP deputy commissioner. His strategies so far include a partnership with banks to stop drug-related money laundering.
• Co-operate with the United States on a joint anti-drug strike force.
• Designate drug cartels as terrorist groups, as Mr. Trump did in one of his early executive orders. Canada added seven groups to the terrorism list: Five Mexican cartels, Salvadoran gang MS-13 and Venezuelan organization Tren de Aragua.
• Have 10,000 personnel at the Canadian border. Ottawa had already committed to a bigger presence at the border with drones and surveillance towers.

How Canada can fight back in a a tariff war

Federal

Countertariffs are only one way Ottawa can act against Mr. Trump’s policies. Limiting export permits for critical minerals is another option the Trudeau cabinet discussed, but it is not yet clear whether Mark Carney’s government will follow through. Procurement – the rules for where the government buys its goods and services – could also be tightened up to reduce spending on U.S. contractors: Mr. Carney says that’s an option on the table for the F-35 fighter jets that it bought from Lockheed Martin.

Provincial

Energy, procurement and alcohol sales are the weapons in the provincial arsenals. Ontario Premier Doug Ford – who called and won a snap election on the tariff issue in February – barring LCBO stores from selling American liquor and carrying out a Buy Ontario strategy for government contracts. Other provinces have been more reticent to cut off the power, fossil fuels and critical minerals they send south.

By industry

Every sector of Canada’s economy, from banks to small businesses, is girding itself for difficult times ahead. Here’s what some of them have done so far.

Agriculture: Trump won’t admit it, but Canadian potash fuels U.S. farms

Steel making: Canadian sector facing ‘doomsday’ scenario with tariffs

Manufacturing: Tariffs will halt North American auto production and trigger layoffs: Linamar

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‘Buy Canadian’ basics

Canadians are answering the call to buy more Canadian goods, supporting people and businesses that might lose access to U.S. markets. But when you’re checking the sticker to see which goods are Canadian, the wording is important.

Businesses aren’t required to put “made in Canada” labels on their wares, but when they do, the Competition Bureau has strict standards for who can make those claims:

• Made in Canada: This means at least 51 per cent of the direct costs of making the product came from a Canadian source, and the “last substantial transformation” of the product took place here. Baking a loaf of bread, for instance, is the final step in turning ingredients that may have come from somewhere else into the thing for sale. If the ingredients did come from abroad, especially for a food product, a “made in Canada” label is required to disclose that.
• Produced in Canada: Same as “made in Canada,” but the percentage cost is at least 98 per cent.

One place to search for Canadian-made products is Made in CA, run by digital-media consultant Dylan Lobo. Tyler Campbell of Uxbridge, Ont., set up the website in 2018, when he was 17 and Canada faced a similar wave of buy-local enthusiasm during the first Trump administration.

Compiled by Globe staff

With reports from Erica Alini, Mariya Postelnyak, Jason Kirby, Mark Rendell, Robert Fife, Steven Chase, Ian Bailey, Mike Hager and The Canadian Press

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MAGA economics in depth

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Untangling the MAGA mind on tariffs

Trump’s 2018 steel tariffs brought higher prices, did little to boost jobs