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Trump has declared economic war on Canada, and has done so in a fashion that Canadians can no longer take the premise of “free trade” seriously. The tariffs have not yet come into effect, and there is an easy off ramp for the Canadian tariffs — the Canadian/U.S. border fentanyl trade is nearly non-existent (the formal justification for the tariffs). That said, unless the American stock market collapses, there is no sign that Trump will back off quickly.

Given that Trump just trashed the trade deal that he himself negotiated, any future trade deal with him would be at best a ceasefire in the trade war. Canadian politicians are going to have to scramble to find non-insane trade partners, and/or start taking national defence seriously again.

The main immediate victim of these tariffs will be the Big Three American automakers, as they have supply chains that criss-cross the American, Canadian, and Mexican borders. This will also hit their suppliers, with some being purely Canadian, but I believe that the larger ones also operate cross-border. This is devastating to the Ontarian economy (which the Conservatives have to win to have a chance at a Federal majority).

Canadian crude is heavy crude, and is needed by American refineries to match against the light crude liquids released by fracking. Unless the Americans get really cosy very quickly with Venezuela, those imports will have to keep flowing. There are other imports that the Americans have no choice but to eat the tariffs on in the short term. As such, although the auto sector might suffer a sudden stop, other cross-border flows will continue for awhile.

Given that Trump has signalled that the objective is the economic annexation of Canada, there is no easy way out of this. Such a stated objective is disastrous for the Federal Conservatives. Their leader does not even have Canadian security clearance — which is not exactly what you want to see when you face an existential threat. Coasting to victory saying “Trudeau bad!” is no longer going to work — even the notorious right wing loons on Canadian Reddit forums are hopping mad at Trump. I expect Mark Carney to be the Liberal Party leader, and he has an impressive economic resumé as well as a distance from Trudeau that should reassure centre-right moderates (who still exist outside of Alberta).

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It remains to be seen how badly the Chinese will react to the 10% tariffs, and I do not have enough of an understanding of Mexico to offer any useful analysis. The Europeans are probably getting ready to use the playbook of the Canadian retaliatory tariffs — target the output of red states.

Amid all the other chaos, there is a clear theme that the Trump administration intends to follow through on ideas that have been floating around right wing circles for some time — have the Treasury selectively pay obligations as they come due. Any foreign entity holding U.S. Treasurys will have to think carefully about the implications of such a move.

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