On November 25, citing illegal immigration and the entry of fentanyl into the United States, President-elect Donald Trump said that on assuming office in January next year, he will sign an Executive Order “to charge Mexico and Canada a 25% tariff on ALL products coming into the United States,” unless both countries stop what he calls an “invasion” of drugs, “in particular Fentanyl, and all Illegal Aliens” into the United States.
Given the high degree of integration of the Canadian and United States economies, the importance of deeply intertwined supply chains and the value of trade between the two countries, many observers view Mr. Trump’s statement of intent as an “existential threat” to Canada. Numerous stakeholder groups have characterized the threatened tariffs as “catastrophic” for the Canadian economy. It is clear this issue will dominate both national and provincial politics in Canada until Mr. Trump is inaugurated on January 20.
This backgrounder provides an assessment of the potential impacts of such a tariff on Canada and explores the strategies that will likely be used by Canada to mitigate its effects on this country. Because there are roughly six weeks before the inauguration will take place, there is much we simply do not know about whether and how the new Administration will follow through on the November 25 statement, or if Canadian interventions will be successful in modifying it in the meantime. There will be many moving parts at play on both sides of the border in the coming weeks.
Justin Trudeau’s trip to Mar-a-Lago
On November 29, the Prime Minister seized the initiative by having dinner with president-elect Trump and several of his cabinet nominees in Florida, thereby becoming the first G7 leader to meet with Mr. Trump since his election. Mr. Trudeau was joined on the trip by Public Safety Minister Dominic Leblanc and his chief of staff, Katie Telford.
The dinner guests present on November 29 will all play critical roles in the Trump Administration on key Canada-U.S. files:
- Howard Lutnick is the nominee for Commerce Secretary, whose department’s mission is “to foster, promote, and develop the foreign and domestic commerce.”
- Mike Waltz is slated to be the National Security Advisor. A former Florida Congressman, in the past he has made highly critical comments about Justin Trudeau, calling him “shameful” for abstaining from a vote on Chinese genocide of Muslim Uyghurs. He also lamented the Trudeau government’s allowing the sale of a lithium mine to a Chinese state-owned entity.
- Julia Nesheiwat, who is Mr. Waltz’s wife, is also Vice President, Policy and Insights, of Calgary-based TC Energy which owns and operates several natural gas and liquids pipelines. She has worked in the administrations of four U.S. presidents.
- Doug Bergum currently is Governor of North Dakota and the nominee for Interior Secretary, the department responsible for the management and conservation of most federal lands and natural resources, as well as national parks. He is also designated as the Director of a new “National Energy Council.”
- Dina Powell, wife of Pennsylvania Senator-elect Dave McCormick. Ms. Powell was Deputy National Security Advisor in the first Trump Administration and is known to PMO staffers.
In an X posting following the meeting, Trump called the meeting “productive” and said the two had discussed “the Fentanyl and Drug Crisis that has decimated so many lives as a result of illegal immigration, Fair Trade Deals that do not jeopardize American workers, and the massive Trade Deficit the U.S. has with Canada.” A Canadian spokesperson said there was no guarantee that tariffs are coming off the table, but the Canadians left the meeting with optimism that a solution is attainable. Public Safety Minister Leblanc said, “We talked about how the Canadian economy and the American economy depend on each other. And we talked about how difficult the imposition of tariffs would be on many American consumers and why it’s in our interest to work together on shared security concerns.”
What’s at stake for Canada?
The Canada – United States trade relationship is extensive, mutually beneficial and significantly integrated between the two countries:
- Canada is the top U.S. partner for trade in goods and services. According to the U.S. Congressional Research Service, in 2023, Canada exported 78% of its goods to the United States, and imported almost half of its goods from the U.S.
- In 2023, the top three Canadian exports to the U.S. were energy ($103 billion), motor vehicles ($73 billion) and primary metals for manufacturing ($35 billion).
The latest Canadian public opinion
Earnscliffe Strategies conducted a representative survey of 2,018 respondents living in Canada from November 28 to December 1, 2024.[1] For comparison purposes only, a survey of this size would have a margin of error of +/- 2% at a confidence level of 95%.
The results:
- A large majority (90%) of respondents say they are at least somewhat aware of the details of President-elect Trump’s announcement, with 44% saying they are very aware of the details.
- Four-in-five (80%) of respondents say that they are somewhat or very concerned about the announcement on tariffs from President-elect Trump.
- Less than half (41%) of respondents say they are very or somewhat confident in the federal government’s ability to respond to this announcement, but one-in-five (21%) say they are not at all confident in the federal government’s ability to respond.
- When asked about their provincial governments’ ability to respond to this announcement, respondents in most regions of Canada report similar levels of those say they are very or somewhat confident (43-47%). The outlier is Quebec, where 61% of respondents say they are not very or not at all confident in their provincial governments’ ability to respond.
- When asked how likely it is that the United States implements tariffs on goods produced in Canada, almost three quarters (72%) say that it is very or somewhat likely.
- When asked about a hypothetical future in which tariffs are implemented, majorities of respondents say that the impact will be somewhat or very negative on the Canadian economy (83%) and themselves personally (61%).
- The intensity of the perceived impact varies, with a plurality (47%) of respondents saying that the impact on the Canadian economy would be “very” negative. By comparison, a plurality (42%) say that the impact would be “somewhat” negative to themselves personally.
The legal basis for the tariff threat
As the Fraser Institute has pointed out, “The U.S. Constitution gives Congress the authority to impose tariffs and to regulate commerce with foreign countries. But Congress has selectively delegated authority to the president to impose a range of trade restrictions on foreign countries under provisions of various congressional acts.”
- Section 232 of the Trade Expansion Act of 1962 grants the president the authority to adjust imports, including by imposing tariffs, when they are deemed a threat to national security. This is the section Trump used in March 2018, during the negotiations leading to the eventual Canada United States Mexico Agreement (CUSMA), when he imposed a 25% tariff on steel and a 10% tariff on aluminum imports from Canada to raise pressure on this country.
- In addition, under Section 301 of the Trade Act of 1974, the president may impose retaliatory tariffs when “an act, policy, or practice of a foreign country … violates, or is inconsistent with, the provisions of, or otherwise denies benefits to the United States under, any trade agreement, or … is unjustifiable and burdens or restricts United States commerce.”
The reference in Section 301 of the Trade Act of 1974 to “any trade agreement” explains how Trump would be able to override the provisions of CUSMA. The tariffs on Canada and Mexico that he has proposed would blatantly contravene CUSMA, but as indicated above, the President clearly has several legal avenues that allow him to override the Agreement. Legal appeals against the under CUSMA may be possible, but they would take years to adjudicate.
Mr. Trumps’s concerns: illegal immigrant crossings at the northern border and fentanyl
There has been some confusion in Canada about the size and extent of the U.S. northern border problem with illegal immigrants. While most media and some ministers have been using the number of 23,721 as the number of illegal crossings from Canada into the U.S. for all of 2023, the problem is really much larger. A more accurate reading of the U. S. Customs and Border Protection Agency month by month statistics shows that CBP officers intercepted about 198,000 people crossing illegally into the U.S. from Canada over the last year. That’s a fraction of the 2.1 million crossing into the U.S at the southern border with Mexico, but it’s still a significant number. And it represents a major increase since 2022, when the number of illegal crossings was less than 90,000.
As for fentanyl, the comparative numbers with Mexico are quite different. Last year, U.S. customs agents seized 43 pounds of fentanyl at the Canadian border. As the Globe and Mail recently pointed out, “This represented less than 0.2 per cent of the total 21,900 pounds intercepted across the U.S. More than 96 per cent of that total, 21,100 pounds, was seized at the Mexican border.”
Likely Team Canada approaches
In the weeks before the Trump tariff threat emerged, several premiers expressed apprehensions and concerns about Canada’s readiness to respond to his incoming Administration. Several premiers pointedly asked who the federal lead was on Canada-U.S. relations, and Quebec Premier Francois Legault said that Trump’s fears about immigration were “legitimate” and called for tighter management of the northern border with the U.S. Alberta Premier Daniellle Smith called Trump’s concerns about the Canada-U.S. border “valid” and called on the federal government to work with the incoming administration to resolve these issues immediately to avoid “any unnecessary tariffs on Canadian exports to the U.S.”
Through his trip to Florida to meet with the president-elect, it is likely that the Prime Minister has successfully reasserted his leadership vis-à-vis the premiers on the threatened tariffs, but much work needs to be done.
Here is a preliminary view of how these efforts might unfold:
Canada will focus first on addressing Trump’s border security and fentanyl concerns
This work has already started. Following the meeting with the premiers, Deputy Prime Minister Chrystia Freeland and Public Safety Minister Dominic LeBlanc said that Ottawa is prepared to pump more money into the Canada Border Services Agency (CBSA) and the Royal Canadian Mounted Police. The PM told Trump in Florida that he would increase security along the Canada-U.S. border and specifically told Trump he’ll increase helicopter and drone patrols and border staff. Money to pay for the additional resources will be included in the Fall Economic Statement, to be released at some point before the Christmas break.
On fentanyl, after the Florida meeting, the Canadian spokesperson said that “one thing that struck Canadian officials is how important the fentanyl issue is to Trump and that anything Canada can do to help is key.” Watch for further Canadian commitments to act on fentanyl.
An early priority will be Canada’s top three exports to the U.S.: oil, autos and metals for manufacturing
Oil exports: Given the importance of Alberta oil exports to the U.S., significant efforts will be made towards convincing Trump and his officials that the proposed tariffs on this commodity are self-defeating to their goal of improving American self-sufficiency in energy. As Premier Smith said following the Florida dinner, “It once again demonstrates that the path to a strong security and economic relationship with the United States is directly tied to our nation’s commitment to providing the United States with the oil and gas it requires to achieve its energy security and affordability goals.” An exemption to the threatened tariffs on oil is also in the federal interest: a 2021 study by EnergyNow calculated that Alberta’s oil and gas sector contributed $53 billion to federal revenues between 2007 and 2019.
Despite her continuing criticism of the federal government on federal energy policy, Alberta Premier Danielle Smith, as well as Manitoba Premier Wab Kinew, would be ideal messengers to meet with U.S. cabinet designate Doug Bergum, current governor of North Dakota, to pursue this issue.
Motor vehicles: Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, has said that it’s unreasonable to apply such a tax to auto parts, which may cross the border up to eight times before ending up in a finished vehicle. This means that auto manufacturers in Canada, the U.S. and Mexico will be united in arguing that the proposed tariffs will deliver a huge hit to the integration of the industry in North America. Moreover, according to AutoTrader, the average price of a new car was $65,913 in October 2024, so under a “worst-case scenario” where the full 25 per cent tariff comes to fruition, the average price would jump to around $82,000.
Watch for key federal ministers and Ontario’s Premier Ford to be deployed to reach out to the governors and other key officials in states with automobile manufacturing sectors to present a united front against the proposed tariffs.
Metals for manufacturing: According to a recent report by TD Bank, “in 2022, the United States designated fifty minerals as critical to the U.S. economy and national security…. For most of these minerals, the U.S. has minimal domestic deposits or refining capacity and as such is largely dependent on its trading partners to procure the supplies that it needs. China dominates global refining capacity for over half of the critical minerals listed, which creates a challenge for the U.S. amid rising trade tensions between the two nations.”
There is a significant opportunity for Canada to become a preferred supplier for these critical minerals to the United States but achieving that objective will require major changes on Canada’s part. As Teck Resources President and CEO Jonathan Price recently told an event sponsored by the Business Council of Canada and the American Chamber of Commerce in Canada on Strengthening Critical Minerals Security, “We need to collectively figure out how to overcome the lengthy and often unpredictable permitting processes that can and have deterred new mining investments in Canada and the U.S.” This will require attention by Canada to ensure that critical mineral developments do not take 10-15 years to become real.
More general approaches
The groundwork has been laid for a reconstituted Team Canada approach. According to Politico, a year ago, with Trump again heading towards being the Republican nominee, Canada’s Washington embassy began mapping every political and business relationship they had in each U.S. state. The result was a revised Team Canada plan headed by Canadian Ambassador Kirsten Hillman, ISED Minister Francois-Philippe Champagne and International Trade Minister Mary Ng to “court ‘influencer’ lawmakers and business leaders, especially in places historically ambivalent about Canada — states such as Texas, Arkansas, Louisiana, Mississippi and Florida.”
As noted by Xavier Delgado of the Canada Institute at the Wilson Centre, “Canada is the top export market for 34 U.S. states; of those, it accounts for over 40 percent of total exports for four states (Arkansas, Maine, Michigan, and South Dakota) and over 25 percent for twelve others (Idaho, Illinois, Indiana, Iowa, Minnesota, Missouri, Ohio, Oklahoma, Pennsylvania, Vermont, West Virginia, and Wisconsin). Depending on what goods these hypothetical tariffs target, entire industries and communities at the state level could be impacted by Canadian retaliation.”
Expect appropriate Canadian premiers and selected federal ministers to be assigned Team Canada outreach roles to these states to explain the impacts of the Trump tariffs on mutual trade relationships. To support these outreach activities, Premier Ford on December 2 announced a multi-million-dollar advertising blitz aimed at U.S. audiences touting Ontario’s importance to the U.S. economy. The campaign will air during Fox News primetime, NFL football games and at Washington airports over the holidays. In the new year, the campaign will expand to include enhanced visibility in Washington through transit shelters and billboards, as well as across target states via digital channels and prime placement for Super Bowl streaming on the FOX Sports app.
Potential retaliation
It will be denied by federal officials when asked, but the federal government is now developing a list of imports from the U.S. to be targeted in retaliation if the threatened tariffs are implemented against Canada. This is the approach that was taken in 2018 when Trump imposed tariffs on Canadian imports of steel and aluminium.
[1] Earnscliffe designed and analysed the survey, using Leger’s LEO panel as the sample source.
