New Week, New Tariffs

Trade war between the U.S. and Canada continues to escalate 

Trump Backs Down Due to Market Trouble 

Last week, our team wrote about the imposition of 25% across the board tariffs on Canadian goods by the Trump administration. The resulting tariff showdown resulted in historic declines in US equity markets, putting enormous pressure on the White House to walk back their threats – which they did two days later, announcing that USMCA-compliant trade would be exempt from the 25% tariff.  

Initial confusion arose from the Americans’ use of the term “USMCA compliant goods”. Analysts have pointed out that Canadian exporters have previously had the choice of trade regimes that they could use to move goods over the border. Many exporters used the WTO’s Most Favored Nation (MFN) tariffs instead of the USMCA ones. To avoid the additional 25% tariff, exporters could simply shift over to the USMCA regime until the April 2 deadline.  

Despite this, Canada is keeping the initial $30 billion in retaliatory tariffs, but promised to delay the $125 billion in threatened countermeasures, although the remissions process to refine the tariff list is ongoing.  

Canadian producers have choices on the processes used to ship goods across the border. For some, there is simpler administration involved in shipping under the WTO’s Most Favoured Nation status rules, instead of USMCA. For these products, altering the compliance regime will help in the temporary avoidance of new tariff measures until at least April 2nd, when the President is intending to bring the tariffs back along with global reciprocal tariffs.  

A Tuesday Full of Flip Flopping 

Last week’s relative stability is old news. Tuesday was easily the most active day yet of the US – Canada Trade War, with a series of announcements, rollbacks, and buck-passing in response to the markets and the whims of President Trump. In response to last week’s US tariffs, Ontario’s Minister of Energy and Electrification, Stephen Lecce, and Ontario Premier Doug Ford announced that the province would introduce a 25% surcharge on electricity exports to the US on Monday, with Premier Ford remarking that “Ontario will not relent”.    

Ontario’s retaliatory plans got the attention of President Trump and U.S. Secretary of Commerce, Howard Lutnick, who demanded that Premier Ford back down. When the Premier wouldn’t, the President announced in the middle of the day Tuesday a doubling of planned steel and aluminum tariffs, up to 50%. The US President would later post on social media that electricity is a hard line and that he would declare a national emergency on electricity, because of Premier Ford’s surcharge.  

Despite this back and forth, cooler heads prevailed late Tuesday, with Premier Ford and Secretary Lutnick agreeing to a sit-down meeting to discuss the repeal of tariffs, with Federal Minister of Finance Dominic LeBlanc present. For now, the market rule allowing a 25% surcharge levied on electricity exports to the United States is on hold, as are the additional 25% tariffs on aluminum and steel.  

This is a marked change in tone from the president, who called Premier Ford a “strong man”, showcasing that while his mood may be mercurial, he responds to strength from his opponents.  

The Saga Continues 

However, President Trump then followed through and implemented the initially planned 25% tariff on steel and aluminum imports to all countries, as of midnight on Wednesday March 12th. This prompted a swift reaction from Minister LeBlanc, a few hours later that morning.  

The reaction comes in the form of new Canadian tariffs on $29.8 billion worth of US goods. This is on top of previous levied Canadian tariffs on $30 billion of goods, totalling $59.8 billion in goods and a matching of US impact in the trade war. The new tariffs target US made steel and aluminum, computers, sports equipment, and certain cast iron products among other products. A full list of tariff codes and products can be found here.  It can be expected that provinces will continue to implement non-tariff measures, such as impacts to procurement of US goods and services, limiting of the sale of some US goods, and a continued effort to shield from the malicious economic effects. 

Putting Federalism to Work for Canadians  

In his acceptance speech at the LPC Leadership Convention, Prime Minister Designate, Mark Carney, called for Canadians to come together to fight the trade war, use proceeds from the retaliatory tariffs to support workers in Canada, and dissolve trade barriers, “until the Americans show us respect.” Other premiers have also been quick to include Carney in their narrative. Premier Ford has responded positively to Carney at the helm of the federal government, calling him a “very bright individual who understands finances like no other person”, on MSNBC,  foreshadowing his Wednesday breakfast with the PM Designate.   

However, there is a chance we may see a change in the dynamic between the provinces and federal government as we move into an election period. Carney will also need to establish his role in the Team Canada approach and quickly.  

Premier Ford and the federal government have enjoyed a close relationship in recent months, working in tandem to advance the Canadian response to US economic aggression. Importantly, federalism and the division of powers are serving two purposes for the provinces and federal government as the trade war continues. First, premiers can act as leaders of their provinces, but unofficial spokespeople of the Canadian public. This leads to a diversity of public relations opportunities to break through the US and Canadian media walls and drive specific issues. Premier Ford is no stranger to US media, and while he has been the face of Canadian pushback, PM Designate Carney may choose to take a more active role in promoting the Canadian position. PM Designate Carney informally launched his leadership campaign on Jon Stewart’s talk show, and we may see more of this to come as the federal government reviews its strategy for a Team Canada approach. 

Secondly, it allows for nuanced approaches to the tariff response, where non-tariff actions can be implemented to complement federal action at the southern border. American media outlets may not understand the nuanced nature of Canadian federalism, but the Ontario change to electricity surcharges fell squarely in provincial jurisdiction. This allows unique approaches to impact the US, while also allowing the federal government to appear reasonable within the negotiations. It’s incredibly unlikely that Premier Ford would pursue changes to electricity costs without the go ahead from the incoming Carney team. Other premiers have discussed the restriction of critical minerals, in moves that could mirror Ontario’s electricity play.