In two instalments Canada’s retaliation to Trump tariffs

In two tranches the government of Canada will apply its billion-dollar reprisals to which the president has imposed, which will enter into force tomorrow (04.02.2025). Specifically, the first dose of retaliation to Trump’s duties will concern products such as alcoholic beverages, and will be valid from tomorrow, while more information on the second instalment will be announced soon, as stated in his government press release. It is recalled that Canada and the United States have the most comprehensive and dynamic trade relationship in the world, which supports millions of jobs in each country. Every day, goods and services worth US$2.5 billion cross the Canadian-US border. This amount amounts to nearly 1 trillion US dollars per year. The significant commercial volume shows how deeply integrated the two economies are, with many goods moving forward – back in the context of joint investment and development projects. In addition to trade, Canada and the US have significant investment relationships. The US is the only largest investor in Canada and at the end of 2023, Canada was the largest source of direct foreign investment in the US. Also, Canada is the only largest foreign energy supplier in the US. For most of the four decades, trade between Canada and the US is governed by a series of free trade agreements. The Canada – USA Free Trade Agreement (CUSFTA), implemented in 1989, was the first of its kind, followed by the North American Free Trade Agreement (NAFTA) in 1994, to which Mexico was added. CORVERSE The most recent development of this agreement is the Canada-US-Mexico Agreement, which entered into force in July 2020 and balances trade relations across the North American continent and facilitates trade in all parts of the economies. The duty is a tax or duty imposed by a government on an imported or exported commodity. When properly used, it can be both an important source of revenue for a government and a tool for protecting domestic industries from foreign competitors. Tariffs increase the price of imported goods in a country, making them less competitive than alternative products. Why does the US apply duties aimed at Canadian products? The US claims that the duties announced on 1 February 2025 are intended to oblige Canada to take stricter measures against illegal immigration and trafficking in fentanyl in the USA. Less than 1% of fentanyl and illegal passages in the US come from Canada. In response to this US concern, the Canadian government announced additional USD 1.3 billion investments under Canada’s border plan, which strengthen border security, strengthen the immigration system and further reduce drug trafficking and other harmful substances. Effects of US duties The US government’s decision to impose duties will have disastrous consequences for the American economy and the American people. Customs will reverse production in American car assembly plants and oil refineries and increase costs for American consumers – in petrol pumps and grocery stores, whether they are products manufactured in Canada or for American products using Canadian materials, endangering American prosperity. Canadian companies based on cross-border supply chains will face logistical and economic challenges. Businesses will likely see reduced demand from American buyers due to increased prices, slowing down overall economic growth in Canada. With many American companies based on Canadian imports, duties on Canadian products and materials will significantly increase prices for American companies and consumers, leading to inflationary pressures in the US. Customs will also disrupt American supply chains, which could cause delays and increased costs, making American products more expensive. Due to sudden uncertainty about trade relations, businesses on both sides of the border could delay investment, further slowing growth. What is Canada’s plan in response to American tariffs? Canada reacted to the imposition of US duties on Canadian products by establishing a first set of countermeasures aimed at exerting economic pressure on the USA to remove duties as soon as possible. Canada countermeasures include: Customs duties on goods of a value of $30 billion imported from the US, valid from 4 February 2025, when the American duties are applied. The list includes products such as orange juice, peanut butter, wine, alcoholic beverages, beer, coffee, appliances, clothing, footwear, motorcycles, cosmetics and pulp and paper. Notice that the government intends to impose duties on an additional list of imported US products worth $125 billion. The full list of these goods will soon be available for a period of public comments 21 days prior to implementation and includes products such as passenger vehicles and trucks, including electric vehicles, steel and aluminium products, certain fruit and vegetables, aerospace products, beef, pork, dairy, trucks and buses, recreational vehicles and recreational craft. All options remain at the table, as the government examines additional measures, including non-tariff options, in case the US continues to apply unjustified duties to Canada. Effects of the Canadian duties Canadian countermeasures concern the protection and defence of the interests of Canada, consumers, workers and businesses. The imposition of duties on American products imported into Canada increases the prices of these products for sale in Canada, making their purchase less desirable for Canadian consumers. By increasing prices and reducing their demand from Canadian consumers, this sends a message to American companies and the US government about the need to reverse the imposition of tariffs, for the benefit of both Canadians and Americans. At the same time, to help reduce the economic burden on Canadian consumers due to higher prices of American products, the Canadian government encourages Canadian consumers to turn from the American product market to those manufactured in Canada. This will also help to support Canadian companies by increasing their domestic sales, especially if their exports are affected by US duties.