Retaliation to U.S. Tariff Attack

 We will hear today how Canada intends to retaliate 'dollar for dollar' to the U.S. tariff attack on Canada. As University of Calgary economist Trevor Tombe has written, it will be impossible to structure retaliatory tariffs that simultaneously satisfy three key objectives: targeting U.S. swing states; significantly impacting U.S. producers; and minimizing impact on Canadian business and consumers. Perhaps a different approach is required.

What needs to be addressed is not the U.S. tariffs in themselves -- this is not a commercial issue. What needs to be addressed and challenged are the manifestly clear U.S. objectives. They want to shift auto, metal, wood product and other major manufacturing activity from Canada to the United States and at the same time retain Canada as a source of low cost primary energy, mineral, raw log and other resources.

Our retaliation could and should directly and transparently target the U.S. attempts to turn us into a classic resource colony with a three-pronged approach.

1) Canada should tariff all U.S. manufactured goods at the same rate they tariff us. We should eliminate the tariff rate imbalance that will encourage industry to move from Canada to the U.S. even for goods sold in Canada. 

2) Canada should require retailers to clearly indicate U.S.-sourced supply. Canadians want to help defend against the U.S. tariff attack; they should be given the ability to do so..

3) Canada should impose an export tax on all primary resources destined to the United States at a rate equal to the weighted-average tariff rate the US is imposing on our manufactured goods. We shouldn't allow the U.S. to access our primary resources tariff free for their manufacturing activity while they are  attacking our own manufacturing industry. 

This three pronged approach would make clear to the Americans how and why we will respond to their current attack and the additional ones they are threatening. It would make clear to U.S. citizens we are not the aggressors; we are responding to their aggression.  And if and when the U.S. reverses its trade agreement-breaking attacks,  our retaliation would automatically end. 

This three pronged approach would provide what is sorely needed -- clarity and resolve on where escalation will lead and a set of principles setting out how deescalation can quickly be achieved.

Our Strongest Counter to the American Demands

It has rightly been said many times: nobody can win a trade war. And it goes without saying that a trade-dependent country like Canada certainly can't win a trade war with the much larger and less trade-dependent U.S. Both countries stand to lose; Canada much more.

The U.S. is counting on this imbalance (as well as a misguided or cynical disregard for its own economic interests) to press for manifestly unfair trade arrangements with Canada. They want to restrict sales of Canadian goods into the U.S. market, limit any countervailing restrictions on the sale of U.S. goods into the Canadian market, and secure priority access to Canadian energy, critical minerals and other valuable resources that presumably goes beyond what paying competitive prices would provide.

The U.S. leverage is clear -- they can hurt us more than we can hurt them. The question is: how can Canada fight back.

The Carney government appears to be doing all the right things. The more we can diversify our trading relationships, the less dependent will we be on the U.S. -- the less can they hurt us. The more we can stimulate domestic demand with interprovincial trade and more infrastructure and other investments, the less devastating will the U.S. trade restrictions be. 

Nevertheless, significant loss of U.S. markets and disruption of well-established supply chains will significantly impact Canadian businesses, workers and communities.  Restructuring our trade relationships and internal economy will take time. In the interim, business will be lost, workers laid off and families dislocated in the search for new opportunities and employment.

Knowing this, the Carney government must do more than map out a less U.S. trade-dependent future. It needs to articulate and commit to the wide range of worker, family and community support policies that will enable a major restructuring of the Canadian economy in an equitable way. It is easy for Canadians whose jobs and livelihood are not at risk to demand that we stand up to the Americans and that we refuse to accept the unfair trade relationship the U.S. wants. What we need are policies that support those at risk so they too can demand we stand up to the Americans . We need to ensure that it isn't just steel or auto or forestry workers and communities that pay the price.

The U.S. thinks it can make unreasonable demands and secure an imbalanced, unfair deal because of the pain it can inflict. Our strongest counter is to make clear that the pain they can inflict will be short-lived-- Canada will restructure and move on. In the meantime we can take the pain and we can do that because it will be shared.

Elbows up, but hearts in place.