As Ottawa floats possible solutions to U.S. President Donald Trump’s tariff threats, it faces a dilemma: does it appease the United States and open up the domestic market, inflicting volatility and job losses but potentially driving down consumer prices, or does it stand firm with retaliatory threats to protect Canadian industries?
Canada is bracing for the impact of Trump’s threats to levy blanket tariffs of 25 per cent on all goods entering the U.S. from Canada and Mexico, with much being said about price hikes for certain consumer goods if the tariffs come into force, but little attention paid to what possible solutions, like opening up the market, could mean.
“I’m not going to sugarcoat it, there will be job losses if we open up those protected industries,” says Ian Lee, associate professor at Carleton University’s Sprott School of Business.
“But prices will go down, not up, and businesses can go on to much greater success [in an open market].”
At the heart of this trade battle is a list of long-held U.S. grievances. The behemoth south of the border wants access to Canadian markets for all kinds of goods and services, namely telecoms and banking. This could have positive results for Canadians in terms of purchasing power — but if Ottawa doesn’t meet Trump at the negotiating table, the ramifications of a trade tit-for-tat could be far more devastating.
“We cannot get into a trade war. If we do, we will be slaughtered,” Lee says.
Trump is known for his long-held beef with Canada’s protectionist industries — particularly supply management, which protects the country’s dairy, egg and poultry industries. But he’s not the first U.S. president to clash with Canada on trade. Instead, he may just be the most vocal about it.
“I don’t really see Trump raising any particular trade issues relative to Canada that aren’t widely held in the United States,” Mark Warner, a principal at MAAW Law in Toronto says.
“The irritants were always there. Trump is acting on them when past presidents did not.”
Key members of the incoming Trump administration have described tariffs as a bargaining tool used to pull other countries into line and to protect American interests. But the United States’ 2018 trade war with China proves that Trump isn’t afraid to make good on those threats.
This week, the Liberal government threatened a “dollar for dollar” response to Trump’s tariffs, which could come into effect as early as Feb. 1, but now look more likely to be put in place in April. Canadian Prime Minister Justin Trudeau insists tariffs would not only harm Canadian industries but also increase costs for American consumers, particularly in sectors like automotive, lumber, and oil — so retaliation must be “strong.”
But, experts say, the size disparities of the two countries make this an uneven, if not disastrous fight.
“That’s absolutely absurd… no country can stand up to this might against this juggernaut,” Lee says.“Our strategic objective is the elimination of all tariffs… It’s not to get to show a bunch of angry voters that we went and socked Donald Trump in the face or kicked him in the shins to make us feel better.”
Which is why the “Team Canada” approach is splintering. While Canadian voters overwhelmingly believe fighting fire with fire is the best option, several provincial leaders, including the premiers of Quebec, Saskatchewan and Alberta, have refused to adopt the retaliation narrative.
Alberta Premier Danielle Smith has gone so far as to attempt to curry favour with Trump with a peacemaking mission to Mar-a-Lago.
Trump continued his taunting during a virtual address to the World Economic Forum in Davos, Switzerland, on Thursday, where he lashed out at several allies but saved much of his ire for Canada — saying he didn’t need Canadian cars, lumber or oil.
He maintained that it’s “not fair” that the U.S. has a trade deficit with Canada to the tune of $200 billion or $250 billion.
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That claim may be erroneous — the U.S. goods and services trade deficit with Canada was about $40.6 billion in 2023, according to the U.S. government’s Bureau of Economic Analysis, and much of it is caused by the U.S. importing Canadian oil, which keeps costs at the pump down for Americans — but his laundry list of perceived trade infringements are not.
Supply management is ‘deader than dead’
Canada is currently on the USTR (United States Trade Representative) watch list because of concerns over its enforcement of intellectual property rights, particularly around high levels of online piracy, inadequate border controls against counterfeit goods, and a perceived lack of strong penalties for copyright infringement.
But Trump, and previous U.S. administrations, harbour a long list of grievances that extend well beyond those issues.
Softwood lumber is one source of contention — a decades-long bilateral back-and-forth — as are banking and telecom monopolies, Canada’s controversial digital taxes levy and its liquor and energy industries.
The country’s supply management system, which protects the country’s dairy, egg and poultry industries from market volatility, has long rankled the U.S., and Trump in particular. Opening up that market was a central point in renegotiating the North American Free Trade Agreement (NAFTA), leading to some concessions in CUSMA. Trudeau announced billions in compensation for Canadian farmers as a result of that deal.
But the number of dairy farms has long been declining in Canada — largely due to advancements in technology and output. When supply management was introduced in 1972, there were about 145,000 dairy farms in Canada. There are now about 9,000.
“The number of Canadians in dairy is so trivial that it’s not even worth considering,” Lee says.
Dismantling supply management could also drive down domestic prices, as more options enter the market, he says.
“[Supply management] is deader than dead.”
Lee advocates fighting tariffs by opening up protected industries to invite competition into the market, and to drive prices down. While there will be job losses, American companies would enter the market and create subsidiaries, he says, which would create more jobs — so there would be more “job churn.”
Lee says Canada also needs to move forward with the CUSMA review, currently set for 2026, and eliminate digital taxes. He also suggests increased spending on military “overnight — I don’t mean 10-year promises we’ve been giving the Americans.”
Canadian businessman Kevin O’Leary, who says he has visited Trump “multiple times” at his Mar-a-Lago estate and is currently jostling with other mega-rich entrepreneurs in the U.S. to buy the U.S. arm of TikTok, agrees.
O’Leary says he attended a dinner party at the Trump estate where the conversation turned to the potential for an “economic union” between the two countries, focused on an EU-like passport to allow freedom of movement, a common currency and the elimination of all tariffs — meaning protections such as supply management must go.
“They’d have to give that up for the economic union… then they would then have free flow to compete with the cheese and butter they make. They could sell it in California, they can sell it in Texas, so their market would increase tenfold.”
O’Leary says it was he who invited the Alberta premier to Mar-a-Lago, where she sought exemption from Trump’s tariff threats — particularly for Canadian crude oil, the majority of which is produced in Alberta’s oil sands.
Smith, too, has also preached diplomacy, not retaliation, as the way forward with Trump.
But that approach is at odds with Canadian voters, and with an upcoming general election, Lee says, much of the retaliatory talks could be political posturing.
A new poll from Ipsos found that 82 per cent of respondents agree with the statement that, should Trump tariff Canadian goods, Canada should retaliate by slapping tariffs on American imports into Canada.
“A large number of Canadians are madder than hell. They want a politician to go out there and punch Donald Trump metaphorically in the face. But this is something that must be resisted at all costs,” Lee says.
‘He’s saying the quiet part out loud’
Trump complained at length at Davos about Canada being “very tough to deal with over the years.” In doing so, trade lawyer Warner says, “he’s saying the quiet part out loud.”
Previous administrations — including Biden and Obama — had difficulties with Canada’s “ragging the puck” approach to trade deals, Warner says, but weren’t as “abrasive” with their messaging.
“It’s the way most of the trading partners with Canada view Canada when it comes time to sit down.
“This is the Canadian modus operandi. It’s just what Canada does.”
However, Warner said, this tactic was getting harder to justify, as China employed similar tactics.
Stephen Miran, a previous senior Trump adviser nominated to chair his Council of Economic Advisers, wrote a lengthy paper entitled A User’s Guide to Restructuring the Global Trading System – which spoke largely to tariffs imposed on China, but could serve as a blueprint for Trump 2.0’s vision.
In the 40-page report, Miran muses about reforming the global trading system on the proviso “that access to the U.S. consumer market is a privilege that must be earned, not a right.”
Tariffs are used as a “negotiating tool” and an effective means of raising taxes on foreigners to pay for retaining low tax rates on Americans, Miran wrote, and would be implemented in a manner deeply intertwined with national security concerns.
Trump’s executive order seeking an “America-first trade policy” is largely centred around national security concerns.
Lee says to gain an understanding of Trump’s thinking behind the tariffs, Canada must look to what he has coined the “Trump Troika” — Miran, Howard Lutnick, a Wall Street executive and Trump’s pick for U.S. commerce secretary and Scott Bessent, an investor and hedge fund manager tapped to be Treasury secretary.
Lutnick is also in charge of Trump’s tariff and trade agenda and has spoken in the past of tariffs being used as a “bargaining chip.” In a recent podcast discussion, Lutnick described tariffs as one of the main factors of U.S. prosperity until the Second World War.
Bessent has proposed putting countries into different groups based on their “currency policies, the terms of bilateral agreements and security agreements, their values and more,” Miran wrote. Buckets can bear different tariff rates and countries can “move between the buckets” if they meet trade objectives.
And for the countries who inevitably want to retaliate, Miran says the the U.S. is well-placed to “win a game of chicken.”
