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Trump thought Canada would roll over and capitulate when he announced his tariff program aimed at Canada and Mexico. Now he is engaged in a trade war in which he totally miscalculated the reaction from the battlefield. Initially, on March 4^th the US put in place a sweeping 25% tariff on Canadian exports with a carve out of a 10% tariff for Canadian oil and gas exports.  Amidst the fury of executive orders rushed out of the Oval Office are directives rolling back orders just issued as recently as 72 hours prior. Those involved in Canada-US cross border trade are constantly overworking their accounting and legal departments to make sure their company complies with the latest Trump missive. But is all this effort necessary, given that Trump is notorious for changing decisions, virtually on a dime?

On March 6^th Trump walked back his decision two days earlier, giving Canada a one-month reprieve from the 25% tariff on a wide range of goods. Now the next deadline appears to be April 2 when the Administration is to receive a full review of bilateral trade flows.This is the second time in less than a month that Trump has retreated from tariffs affecting neighbours to the north and to the south. What Trump expects to be changed, if at all, over the course next 30 days is a mystery to all concerned. Pause for what purpose?

Despite this mysterious reprieve, Canadian officials did not alter their position in this tariff war. Outgoing Canadian Prime Minister Justin Trudeau expects the trade war to last for the “foreseeable future”. In his response he referred to the attack on Canada as a “dumb move”, quoting a recent article in the Wall St Journal. No love lost between the two heads of state. In a matter of a few days, Trudeau will step down from office and a new leader of the Liberal party will be appointed Prime Minister. Do not expect any softening of the Canadian government under a new leader.

Unless one is deep in the weeds of the world of international trade, it is hard to get a reading on where this whole trade mess stands. At the time of writing, the key features are:  

• US officials claim approximately 40% of Canadian exports are exempt from tariffs under a free trade agreement USMCA signed in 2018; tariffs have been put on hold regarding automobiles and agricultural goods, two of the most important sectors hit by US policies; 
• Another 40% of Canadian exports, not covered by USMCA, have always entered in the US duty-free, including computers, medical equipment and telecommunications equipment; US officials are saying these will now be subject to a 25% tariff once the tariff policy goes into effect in a month’s time.
• Canada, in response, has put a 25% tariff on C$30 billion goods worth of US imports; another C$130 billion of imports will be subjected to tariffs should the U.S. resume tariffs currently under the “pause”;  
• Separately from the Federal government, the Premier of Ontario announced that starting, March 10, Ontario the price of Canadian exports of electricity will increase by 25% and will remain so until all US tariffs are removed;
• In response to pressure from American farmers, Trump lowered the tariffs on potash from Canada to 10%; the US agricultural sector is suffering several years of weak sales;

The best way to describe the tariff situation is that it is a “dog’s breakfast”. Nonetheless, companies will continue to work through complex rules, and worse yet, the constant changes by Trump. In the meantime, there appears to no legitimate economic reason for these tariffs, and soon enough the Trump administration is going to run the course without achieving any meaningful results.

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