It’s not just about sending a message. It’s about stopping a massive outflow of Canadian companies.
Despite the divisive online debate, there is a widespread consensus that Canada must retaliate if the United States imposes tariffs on our country.
Though their rhetoric and views on the specifics differ, Pierre Poilievre, Justin Trudeau, and Jagmeet Singh have all called for Canada to retaliate, as have nearly all of Canada’s Premiers.
In calling for retaliation, our leaders are effectively representing Canadian public opinion.
A recent Ipsos poll shows 82% of Canadians agree that Canada should retaliate if U.S. tariffs are imposed by putting our own tariffs on U.S. goods entering Canada. Further, 55% disagree with exempting oil & gas exports from possible retaliatory measures.
Often, calls for retaliation are made in terms of wanting to send a message. This is indeed an important aspect of it. We must send a message that indicates we are a strong nation that won’t be bullied. The world will be watching. If we just roll over and let the U.S. cripple our economy without responding then others – like Russia and China – will be incentivized to test us in even more dangerous ways.
Additionally, if we were to show weakness in response to U.S. tariffs the U.S. would be incentivized to use further threats to gain additional concessions.
At some point, we would have to stand up for ourselves, and it’s better to do so now.
To be clear, this doesn’t mean we shouldn’t seek to address areas of U.S. concern. We should boost our defence spending (something I’ve been proposing for quite a long time) and strengthen our border not because someone else demands it, but because it would benefit our country.
But let’s not be naive.
U.S. President Donald Trump wants to replace domestic tax revenue with tariff revenue. That means tariffs can’t just be a negotiating tactic for him, but are a key part of his economic plan. Additionally, Trump’s mention of the border allows him to use national security authority to impose tariffs on Canada without congressional approval.
And since the border being ‘secure’ will always be open to interpretation, it can always be used to ‘justify’ national security fears.
This is why “just giving Trump what he wants” is no guarantee that tariffs will be avoided, and why giving in would simply lead to more demands based on a perception that Canada can be bullied.
Practical reasons for retaliation
Aside from the ‘sending a message’ reason for Canada to retaliate, there is a very practical reason we must do so:
To avoid a massive outflow of Canadian companies to the United States.
It comes down to common-sense incentives:
“A key reason Canada must be willing to retaliate against U.S. tariffs is that failing to do so would incentivize Canadian companies to shift jobs and operations to the U.S.
Failing to retaliate would mean a Canadian company could avoid 25% U.S. tariffs by moving to the U.S., while still selling into Canada as if nothing had changed.
Imposing counter-tariffs means any company that shifted to the U.S. would be hit with tariffs if they sold into Canada, reducing the incentive to leave.
This must be understood when considering retaliation, and it’s why we can’t take any economic retaliatory measures off the table. Short-term pain from retaliation will be nothing compared to the long-term pain of seeing our companies flee.
Further, counter-tariffs will raise economic and political pressure in the U.S., which could lead to a quicker end to any tariff battle and a return to trade normalcy.”
If we don’t employ counter-tariffs, jobs and investments will head south faster than they already are.
Now, you may be reading this and thinking “Won’t this make everyone worse off?”
And the answer is “yes.”
It is absurd that we are even in this situation. Canada and the U.S. have deeply integrated economies, so integrated that Canada is the top trading partner for 15 U.S. States.
Trump imposing tariffs on Canada will raise prices for American consumers and American companies. The ‘gains’ from such a policy won’t offset the losses, since if it was profitable for companies to produce/buy American instead of buying Canadian, they would already be doing so.
Being hit with U.S. tariffs will hurt Canadian businesses, as their sales to the U.S. will decline and their revenue will drop. Canadian consumers will be hit if Canada imposes retaliatory tariffs on the U.S. because that will raise prices.
However, we must ensure that Canada has companies left over whenever tariffs are removed (or that we have companies that can trade with other nations if U.S. tariffs remain indefinitely). We can’t let our economy be hollowed out, and that is exactly what will happen if we fail to retaliate. We would see company after company shift operations (and jobs) to the U.S., so they could sell products in the U.S. without tariffs and sell products to Canada also without tariffs.
By retaliating, we ensure that companies receive no extra benefit from moving to the U.S.
Of course, that won’t be enough.
We also need to cut business taxes, remove onerous regulations, and – though many don’t want to hear it – put tens of billions in stimulus towards helping Canadian businesses and Canadian consumers make it through the initial readjustment period tariffs will bring.
This is reality
It would be better if none of this were happening.
But it is happening.
We face a reality in which our closest trading partner may be about to deliver one of the harshest economic blows our country has ever faced.
To deal with that reality, we must act in a way that preserves our economy and protects Canadian companies. And that requires strong retaliation.
Spencer Fernando
