Trump’s Trade War With Canada Is Not Going His Way

President Trump's latest attack on Canada’s trade is an act out of pure frustration with his failure to bend Canada to his will. Yesterday ,Trump targeted a 50% tariff on selected Canadian exports which comes into effect at the end of the next 30 days. The exports affected are relatively small in value, affecting just US $20 billion exports, specifically dairy, alcohol and cement and selected manufactured products. Significantly,the tariffs do not affect energy,potash and critical minerals, all vital to the US economy. Granted, these tariffs affect certain sectors, overall the tariffs respresent only 5% of Canadian exports to the US. 

In a blistering opinion column in FT Why Canada isn’t listening to American whining in the wine wars Canada’s former deputy Prime Minister, Chrystia Freeland, argued that Trump taught Canada how to use retaliation. The Ontario Liquor Control Board, largest single purchaser of spirits in the world, imposed a ban on American alcoholic drinks, resulting in a drop in US exports of 80%, directly impacting sales from California and the mid west. The article describes the effort of Californian Congressional leaders pleading with Canada to remove the ban on spirits. It will take more than just a ““pretty please” to change Canadian attitudes toward the importation of US alcohol beverages. There is a sense that we are in the midst of a permanent shift away from US products, as the Canadian domestic wine producers have enjoyed a huge increase in sales. 

Ben Tal of the CIBC notes that a figure of 50% is designed more to force Canada to grant concessions in the upcoming formal CUSMA negotiations. In addition, he points out that US trade policy is highly mercuric, thus creating considerable uncertainty regarding corporate investment. While peak tariff threats reach 50% on targeted goods, CIBC expects the eventual effective weighted-average tariff across all Canadian exports to settle in the 5% to 8% range, once bilateral negotiations take hold. 

Stepping back for a moment, the US-Canada bilateral trade balance continues to be in Canada’s favour, despite a barrage of tariffs designed to reduce the US trade deficit. The introduction of additional tariffed goods this month will not move the needle towards closing the gap in favour of Canada.

Freeland concludes her article saying that “Canadians, and all the other longtime partners facing trade punishment and even attacks on our sovereignty, feel deeply betrayed by the country that led our alliance for the past eight decades. A lot of us are not sure what it will take to ever fully trust the US again”