Canada’s retaliation is a necessary stand against economic intimidation and a signal that unfair treatment will not go unanswered.
Canada’s counter-tariffs on U.S. autos have now gone into effect. Per a statement issued by the Department of Finance, the following tariffs have been applied:
- Twenty-five per cent tariffs on non- Canada-U.S.-Mexico Agreement (CUSMA) compliant fully assembled vehicles imported into Canada from the United States.
- Twenty-five per cent tariffs on non-Canadian and non-Mexican content of CUSMA compliant fully assembled vehicles imported into Canada from the United States.
As the government notes, these tariffs are a response to the following tariffs imposed by the Trump Administration:
On April 3, U.S. tariffs of 25 per cent on Canadian automobiles came into effect, targeting the auto industry and the more than 500,000 Canadians this industry supports across the country.
The U.S. also intends to apply 25 per cent tariffs on certain automobile parts on May 3. Under the U.S. tariffs certain exclusions linked to U.S. content may be available, specifically the application of the 25 per cent tariff only to the value of the non-U.S. content in automobiles and auto parts that qualify for preferential tariff treatment under CUSMA.
As noted in a recent article, U.S. tariffs have already had a negative impact on Canadian workers, with Stellantis shutting down production at its Windsor Assembly Plant for two weeks. We are likely to see further job losses, plant closures/production pauses, and declining investment. And we aren’t alone, with U.S. ‘reciprocal’ tariffs (which are far higher than actual reciprocal tariffs would), going into effect on much of the world:
“A new round of steep tariffs imposed by President Donald Trump took effect early Wednesday morning on products imported from scores of countries around the world.
The round of so-called reciprocal tariffs exceeds a base rate of 10% that was imposed on many other countries over the weekend.
In all, imports from 86 countries are now subject to higher tariffs ranging from 11% to 84%.”
The U.S. is also imposing further tariffs on Canadian lumber, and further additional tariffs on the sector are being threatened.
Should Canada retaliate?
Some have argued that Canada should not retaliate against Trump’s tariffs. For example, Victor Dodig, CEO of Canadian Imperial Bank of Commerce, believes tariffs will “not last long” and noted, “In my own personal view, it’s best not to retaliate. Let’s get USMCA 2.0 renegotiated as soon as possible.”
This perspective is understandable. Given that many people can see how damaging and irrational Trump’s tariff agenda is, there is a desire to assume that irrational policy will not continue. There is also a hope that Trump’s tariffs are nothing more than a negotiating tactic, rather than an expression of a deeply misguided view of trade.
The challenge, of course, is that this optimistic view of Trump’s agenda has been repeatedly undermined by events. Trump views tariffs as an end in themselves, and – as explained in a recent column – Trump’s view of trade is fundamentally flawed. The U.S. President views trade deficits as a loss, which would be akin to arguing that you are ‘losing’ by spending money at the grocery store in return for food.
Some of Trump’s top business backers, who once took the optimistic view on Trump’s tariff agenda – are starting to have buyer’s remorse. For example, Billionaire hedge fund manager Bill Ackman was quite pleased when Trump won the 2024 election, yet is now warning of “economic nuclear winter” if tariffs are not delayed or pared back, and recently reposted an online message that aggressively denounced Trump’s tariffs as being based on “arbitrary and nonsensical” math.
JP Morgan Chase Chairman & CEO Jamie Dimon has also warned of negative potential consequences from tariffs in a letter to shareholders: “The economy is facing considerable turbulence,” Dimon wrote. “We are likely to see inflationary outcomes … Whether or not the menu of tariffs causes a recession remains in question, but it will slow down growth.”
Grappling with reality
To effectively respond to reality, we must first accept it. We should not project our sense of reasonableness or hope for rationality onto Donald Trump’s actions. Instead, we should grapple with the reality of his actions.
Trump chose the nonsensical formula that the White House used to calculate ‘reciprocal’ tariffs. Trump has long sought to impose massive tariffs on much of the world. His trade approach reflects a zero-sum, coercive style of diplomacy, wherein disruption is leveraged to extract unilateral concessions.
By giving in to such coercion, countries only incentivize further coercion. Submission brings more demands for further submission. Failing to retaliate against U.S. tariffs would be particularly damaging for Canada, given that our sovereignty has also been questioned by the U.S. President.
By contrast, retaliation asserts Canada’s sovereignty, signals our refusal to be coerced, and provides leverage: a counterweight that can be lifted in exchange for the removal of unjustified U.S. tariffs.
It should be noted that in the 2018 steel and aluminum tariff dispute with the U.S. (the tariffs were lifted in May of 2019), Canada responded to U.S. tariffs on our steel and aluminum sector with tariffs on American steel and aluminum. As noted by Gabrielle Bardall, an adjunct professor in the Department of Political Science at Dalhousie University, the U.S. took a significant hit from that tariff dispute:
“The 2018-19 trade war hurt Canada’s aluminum industry, but Quebec and British Columbia’s hydroelectric-powered smelters softened the blow by keeping costs low and maintaining demand for cleaner aluminum. The tariffs hurt Canadian exports, but didn’t make U.S. aluminum significantly cheaper, muting the overall effect in Canada. The 2018 tariffs caused steel prices to rise for U.S. manufacturing industries, putting them (and downstream industries) at a disadvantage. By the end of 2019, hundreds of companies across the U.S. had filed nearly 100,000 requests for exemptions from the steel tariffs. In all, analysts estimate that the 2018-19 tariffs may have resulted in 1,000 new jobs in steel production, but overall tariffs on both industries likely resulted in 75,000 fewer manufacturing jobs in firms where steel or aluminum are an input into production.”
In that instance, Canada stood its ground, and the negative impact of Trump’s tariffs proved to be unsustainable. With Trump imposing tariffs on a grander scale, the importance of standing our ground is even more salient. And while formal legal challenges under CUSMA or the WTO may be explored, history suggests political and economic pressure often yields faster results.
Economic pressure on the United States is intensifying at an accelerated pace.
According to Yale’s Budget Lab, U.S. tariffs as of April 2nd, 2025, are set to reduce U.S. GDP by 0.9% this year, and 0.6% on a persistent basis. And that doesn’t account for the broad ‘reciprocal’ tariffs going into effect April 9th, 2025.
Meanwhile, Jaguar Land Rover and Audi are halting vehicle exports to the United States, an indication that global commerce is starting to slow. As the domestic economic fallout intensifies, political repercussions are becoming more visible. U.S. Senators & Representatives are moving to reassert their power over tariffs, and some Republicans are joining them.
Because of our deep trade integration with the U.S., Canada’s retaliation will have a swift impact, and as U.S. businesses and consumers feel the impact of slowing trade flows and boycotts of American products, Trump’s political position will become more untenable.
With this in mind, the Canadian Government’s counter tariffs that came into force tonight are a wise move. And while this retaliation is justified and necessary, Canada must also prepare for the long game: diversifying trade (deepening ties with the EU, Indo-Pacific nations, and exploring CANZUK), strengthening domestic supply chains, and working with allies to reinforce multilateral trade norms.
This is a moment for Canada to demonstrate strength, resolve, and strategic foresight.
Spencer Fernando
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