Tariff Tuesday: Trump’s Trade War Begins

U.S. President Donald Trump’s executive order to establish a 25 per cent tariff on Canadian exports and a 10 percent levy on Canadian energy came into effect at 12:01 AM this morning, marking the start of a devastating trade war between the two countries. The February 1st executive order that was initially rescinded is now in effect.

These tariffs have been introduced despite multiple actions by the Canadian government to address the Trump administration’s stated concerns regarding the relatively small amount of fentanyl crossing the border. Furthermore, Prime Minister Justin Trudeau said that the Trump administration did not engage in negotiations over these tariffs.

Trudeau has announced that Canada will respond with the government’s original retaliatory tariff plan of 25 per cent tariffs against $155 billion of American goods – starting with tariffs on $30 billion worth of goods immediately, and tariffs on the remaining $125 billion on American products in 21 days’ time. Trudeau stated that these measures will stay in place until the United States has withdrawn their trade action. Additionally, Canada will be challenging the tariffs through the CUSMA renegotiation process and the World Trade Organization (WTO). Finance Canada also shared the latest list of the additional $125 billion worth of tariffs, which will be available for consultation until March 25th. 

Trudeau announced that Canada will adjust EI to support workers and will also support businesses affected by the trade war, with more details to be announced in the coming days.

The federal government is also in active and ongoing discussions with provinces and territories to pursue several non-tariff measures. The Premiers will be meeting with the Prime Minister again today and have begun announcing their provincial responses:

• Fresh off an election with a majority mandate to protect Ontario, Premier Doug Ford has announced the following:
  • Ontario is preparing to potentially implement a 25% surcharge on every megawatt of energy that US States purchase from Ontario;
  • Committing to cutting off electricity flowing from Ontario to several American states if Trump adds more tariffs on April 2;
  • “Rip up” a $100-million deal with Elon Musk’s Starlink internet company;
  • Stockpiling nickel mined in Ontario to sell to non-US markets;
  • The LCBO has already been directed to remove all American booze from its shelves; and
  • Banning all US-based companies from government procurement.
• British Columbia Premier David Eby stated that BC will remove all “red-state” liquor products from BC Liquor stores, prioritize BC products within procurements, and supporting BC businesses in moving toward diversifying trade. He also stated that the province will fast track major projects in rural and remote regions.
• Alberta Premier Danielle Smith stated in a news release that she fully supports the federal response announced by the Prime Minister, and that she will have more to say in the coming days.
• MB Premier  Wab Kinew said in a post online that they will take US alcohol off the shelves in Manitoba Liquor Marts.
• Quebec Premier François Legault said that the tariffs could cost Quebec 160,000 jobs over the next few months.  He committed to support businesses by creating liquidity programs and said they would increase funding to Investissement Québec to support diversification efforts.
• NS Premier Tim Houston said in a post online that the province will double the cost of tolls at the Cobequid Pass for commercial vehicles from the United States, effective immediately, remove US companies from procurement, and remove US liquor from the shelves.
• Newfoundland and Labrador Premier Andrew Furey said that U.S. Liquor will be coming off store shelves and he would review U.S. procurement agreements.

Forecasted Economic Outlook

Trump’s tariff announcement led to a stock market sell-off yesterday – a trend which has continued today with markets reacting quickly and strongly to the news.  An American GDP estimator forecast a quarterly drop in US GDP from +2.3% last week to –2.8% today.

Longer term estimates indicate that the tariffs will impact Mexico the most, followed by Canada, with a lesser impact on the US.  The immediate impact in the US is a 0.5% negative GDP impact through 2028 before tapering off to half that.

Several Canadian organizations have highlighted the massive impact that the proposed tariffs would have on the Canadian economy;

• The Bank of Canada estimates that wide-ranging 25 percent tariffs and full retaliation would lower Canadian GDP by 2.5 percentage points in the first year. In the second year, it is about 1.5 percentage points lower.
• A January report by the Canadian Chamber of Commerce said that around 2.3 million Canadians work in jobs tied directly to U.S. exports, and Trump’s tariff could affect all of them.

Non-Retaliatory Tariff Measures

At the Provincial level, Premier Ford has vocally promised billions in non-tariff measures to protect Ontario’s economy. In the Ontario Progressive Conservative election platform, the Premier promised;

• $5 billion to support the resiliency of major industries
• A $10 billion six-month deferral of provincial business taxes
• $3 billion in tax and payroll premium relief for small businesses
• Tax relief for bars and restaurants
• $40 million for communities impacted by trade issues
• A commitment to prioritizing Ontario products for all provincial infrastructure and procurement projects
• A protection program for workers related to tariff-related layoffs

CPC Leader Pierre Poilievre spoke to reporters calling again for retaliatory and targeted measures against US products that Canada can make domestically. He repeated his calls to put Canada First by cutting taxes, getting natural resource projects built as quickly as possible while cautioning the Government to not use the counter tariffs as a revenue source for government spending.  

NDP Leader Jagmeet Singh wrote in an open letter for the House of Commons to return immediately and for legislation to support workers impacted by tariffs. He called for investments to create union jobs by strengthening domestic manufacturing and emergency funding or housing projects. He additionally called for unanimous support for retaliatory tariffs.  

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Counsel’s multi-jurisdictional team will continue to monitor federal and provincial responses to US tariffs. Subscribe to our newsletter today to ensure you don’t miss any critical trade-related information.