TORONTO — Experts say Canada needs to be prepared to take action if U.S. president-elect Donald Trump goes through with his threats of significant tariffs when he takes office in January.
Steve Verheul, former chief trade negotiator for Canada, says though the threat may not seem credible to many, the country still needs to take it seriously by engaging with the new administration and considering potential retaliation.
"We’re in a very uncertain period right now," said Verheul during an online panel hosted by BMO on Wednesday.
Trump has said he will introduce tariffs on Canadian and Mexican imports into the U.S. unless they are able to halt the movement of illegal drugs and migrants across their borders.
Experts have warned such tariffs would be damaging to the Canadian economy.
"Our economies are integrated, our supply chains are closely intertwined, and we would be in for a highly disruptive period of time if such tariffs were to be put in place," said Verheul.
"So I think the question now is, how will Canada respond?"
Canada will do what it can to try and dissuade Trump from enacting such a dramatic policy, said Verheul, but if Trump makes good on his threat come inauguration day, Canada needs to be ready to retaliate, such as with tariffs of its own.
Prime Minister Justin Trudeau recently flew to meet with Trump at Mar-a-Lago, and briefed opposition leaders this week on the government's plan for the Canada-U.S. border.
Verheul was joined on the panel by BMO chief economist Doug Porter and Yung-Yu Ma, chief investment officer for BMO Wealth Management in the U.S.
Trump initially said he would enact 10-per-cent tariffs on all imports, with a 60-per-cent hit for China. But more recently he threatened Canada and Mexico with 25-per-cent tariffs.
Porter said such high tariffs on all imports are unlikely to happen, especially on key imports like energy. Financial markets don't appear to believe the threats will become reality, he said — but that doesn't mean they should be disregarded.
"I think we should take the threat seriously, or at the very least prepare and consider what broad-based tariffs could mean for the economy," he said.
“The reality is, we're dealing with an overtly protectionist president who is very fond of using tariffs."
Verheul said 25-per-cent tariffs across the board would be a significant hit to Canada's economy, which relies heavily on exports to the U.S., as does Mexico.
Trump is a "big fan of tariffs," said Verheul, and sees them as a way to bring production back to the U.S., address trade deficits, and increase revenue.
But while Trump's interest in tariffs isn't new, Ma said this time around we're dealing with a different Trump, one who is no longer a political outsider.
“President Trump is definitely more emboldened with tariffs this time around than he was in 2017, 2018," he said.
While Ma also doesn't think the threats of sweeping tariffs are credible, he could see Trump enacting more limited tariffs on certain goods as bargaining chips.
The Canada-United States-Mexico Agreement (CUSMA) is up for review in 2026, meaning 2025 is a year for negotiations, said Verheul.
"I think there's a good chance that all of these tariff discussions will start to evolve into a renegotiation of the agreement, and we would attempt to address some of those issues within that negotiation," he said.
"So hopefully short term, but it's going to be a rocky period and a lot of chaos in the market."
This report by The Canadian Press was first published Dec. 4, 2024.
Rosa Saba, The Canadian Press
