This isn't just a trade spat. North America changed today
Canada's economy will suffer from tariffs. So will the 90-year project that created the world we know
Tariffs now linger like an executioner's blade over Canada's economy. And U.S. President Donald Trump says he's dropping the axe Tuesday.
If Trump proceeds with his plan, he will not simply upend the economy, but the broader Canada-U.S. relationship built over multiple generations.
The president announced he's moving ahead early next week with a 25 per cent levy on Canada and Mexico, including a smaller tariff on oil. He's made up his mind and isn't looking to negotiate, he says.
"We're not looking for a concession," Trump told reporters in the Oval Office on Friday. "We'll see what happens."
Projected drop in GDP, ballooning deficit, debt
This would unleash the nightmare scenario lurking over Canada's economy.
Former parliamentary budget officer Kevin Page projects a contraction in the neighbourhood of the 2009 recession, somewhere between a two to 2.5 per cent drop in GDP, along with a ballooning national deficit and debt.
But there's an even bigger story being rewritten. It involves Canada's place in the world after 90 years of increased tethering to the U.S. In plowing forward, Trump would interrupt far more than a few decades of Canada-U.S. free trade; he'd be ending an era that stretches back even longer.
Canada and the United States have steadily built closer economic ties with each other since 1935, as they clawed out of an interminable depression.
What past generations built
On Nov. 18, 1935, The New York Times reported that, after a full year of negotiations, the countries would remove hundreds of tariffs and consumers would see cheaper radios, automobiles, clothes, fruits and vegetables.
The integration continued, notwithstanding the occasional disputes — with an auto pact in 1965, then a free-trade agreement in 1987, and more trade agreements in 1994 and 2018 with Mexico.
Canada has just cast its lot with the U.S. in the emerging global reordering. Canada took multiple recent steps that poisoned its relationship with China, but appeared to secure a place inside the American tent.
A towering new trade barrier would mean there is no orbit. There is no tent. And the world Canadians know would be unrecognizably scrambled.
The geopolitical order is a longer-term problem. In the short term, there are paycheques to earn, mouths to feed, and mortgages and rent to pay.
Of all the pockets of the economy at risk of pain, few face greater peril than Canada's No. 2 export to the U.S. — the auto sector.
Auto industry warns of standstill on production lines
A 25 per cent tariff would mean a swift standstill on par with the early days of the pandemic and the truckers' 2022 border blockades, said one industry representative.
"It would end up shutting down the industry across North America — within the week," said Flavio Volpe, head of Canada's auto-parts lobby.
If you're looking for a silver lining, there's not much to go on.
Squint hard enough, and maybe you'll see subtle signs in what Trump said Friday. It was barely perceptible, but when Trump was asked if he was still up for negotiations, he used the words, "Not right now," and "We'll see what happens."
The stock market also sent Trump a subtle message Friday afternoon. The Dow Jones dipped three-quarters of a per cent, a modest but sudden drop.
If something could dissuade Trump, it's the actual economy — the fear that a self-inflicted wound could damage his public standing — because Congress won't stop him and the courts likely can't, according to trade-law experts.
Then again, Trump insists he's ready for some pain. He told reporters Friday he expects short-term disruptions as he reorients the economy.
And if he's bluffing?
Even if Trump does backpedal after a few days, a temporary tariff would still hurt. Companies will have heard the message from Washington loud and clear: Invest outside America at your peril.
This is actually Trump's longstanding trade policy, now on steroids. He's been adding unpredictability into cross-border trade for years.
His allies are clear on this: If companies get worried, they can simply move production to the U.S. It's Trump's goal. The unpredictability is a feature, not a bug.
It's why the new North American trade pact has uncertainty embedded in it. Trump's team insisted on once-a-decade renegotiations, and welcomed fewer legal protections for investors.
In recent weeks, Canada announced a slew of policies to make peace with Trump, promising to tackle drug gangs and cross-border migration. Several members of Trump's team celebrated Canada's moves, welcoming the progress.
But here we are. Trump now vows to stick with something he loves, perhaps his greatest love of all, when it comes to public policy: Tariffs.
"It's one of the most beautiful words in the dictionary," he told reporters Friday, on the eve of an executive action that threatens to reconfigure the economic map of North America.
This Sunday, Cross Country Checkup is asking:
What questions do you have about U.S. tariffs and how they'll hit your pocketbook? Fill out this form and you could appear on the show or have your comment read on air.
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