Canada’s former ambassador to the United States says he’s confident Ottawa can avoid the worst of the tariff threats proposed by U.S. president-elect Donald Trump, but that Canada won’t be completely unscathed.
Frank McKenna, who is now deputy chair at TD Securities, said he believes the incoming president is looking to use money from tariffs to lower American taxes but that Trump’s 25 per cent tariff is likely “a throwaway number” meant to act as a bargaining tactic ahead of his inauguration.
“If he were to actually put 25 per cent tariffs against all Canadian goods and all Mexican goods, that would be enough to precipitate inflation in the United States of America and probably cause a spike in the dollar, which would undermine what he’s trying to do,” McKenna told Global News.
“There is a chance that we could end up with some number like 10 per cent tariffs in the short term until we can get it sorted out but no, I don’t think that we’ll end up with 25 per cent tariffs on Jan. 20.”
If Trump follows through on his threat, federal officials as well as premiers and trade groups have said it would wreak havoc on Canada and the U.S. with more than $3.5 billion in goods and services crossing the border daily.
“It’s impossible to raise tariffs by any meaningful degree without harming both U.S. and Canadian companies,” according to Greg Husisian, a partner at Foley & Lardner who chairs the law firm’s international trade and national security practice in Washington.
In order to avoid the worst case scenario, McKenna says Canada needs to carry out public diplomacy and private negotiations, which are already underway.
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And despite Trump’s jabs at Prime Minister Justin Trudeau calling him the “governor” of the “great state of Canada,” McKenna believes there is hope of reaching an agreement.
“Contrary to what some people might think, Trudeau and Trump actually have a good personal relationship,” he said.
A former New Brunswick premier himself, McKenna also urged Canadian officials to avoid repeating Trump’s narratives.
“I would like to see (the premiers) not amplifying American allegations on the border, for example, with respect to suspected drugs or migration and so on. It would not be helpful if Canadians ended up supporting those arguments of Trump,” he said.
One claim Trump frequently makes is that the U.S. is “subsidizing” Canada’s economy. But as several trade experts explained to Global News, the reality is that America has a trade deficit with Canada.
“(Trump) considers surpluses and trade deficits to be like profits and losses,” Husisian said. “Which ignores the fact that, yes, we’re giving you money, but you’re giving us goods.”
“I don’t run a trade deficit with Wal-Mart because I’m giving that money, because they’re giving me goods back,” he added. “It doesn’t mean that I’m subsidizing Wal-Mart.”
If negotiations aren’t fruitful, McKenna said Canada will need to respond with retaliatory tariffs. But he’s still hopeful the U.S. will abide by the law outlined in the United States-Mexico-Canada Agreement, which Trump himself negotiated during his previous presidential term.
“We have signed, sealed and delivered agreements under NAFTA, now called CUSMA, saying that we are not allowed to do any of these things, so we are on the right side of the law on this,” McKenna said. “The U.S. would be in breach of the law if the (tariffs) go ahead.”
While Husisian agrees that a 25 per cent tariff would be a “flat out violation” of the agreement, that likely isn’t enough to deter Trump.
“Unlike most situations where you look and say, ‘What do the rules allow the government to do here?’ You have to look and say, ‘Well, what is it that the president could do if he doesn’t care that much about the rules?’” Husisian said.
“I think that’s what is partially driving this is,” he added. “He’s salivating over the fact that the [CUSMA] review will give him even more leverage to push Canada around.”
The first joint review of the CUSMA trade deal, which Americans refer to as the USMCA, is scheduled for July 1, 2026, which could make any tariff violations under the existing agreement null by the time they make their way through the courts
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