After his election victory last November, Trump announced on his social network that upon his return to office he would “sign all necessary documents” to impose a 25% tariff on Mexico and Canada. Mexico must stop “illegal aliens” from crossing its border with the US, he said, and Canada must halt the flow of drugs like fentanyl. “Until such time that they do, it is time for them to pay a very big price!”
Trump did not, in fact, sign these documents following his inauguration. Instead, he introduced a deadline – 1 February – by which both countries are supposed to resolve his concerns.
Claudia Sheinbaum, the Mexican president, has already taken Trump through the various migration initiatives her government has undertaken. Experts have raised questions over Trump’s demand from Canada, with so little fentanyl entering the US through its northern border that the US Drug Enforcement Administration (DEA) omitted to even mention Canada in a 2020 report. The government has sent signals it is prepared to do more on migration and fentanyl trafficking – even notching up a record seizure soon after Trump’s threats began – but it has also sought to play down the prospects of a trade war.
Canada sends 75% of all its goods and services exports to the United States, its largest trading partner and closest ally. Trudeau said the trade spat and diplomatic tangle “is not what we want”, but that if Trump follows through on his threats, “we will also act”.
A first round of retaliatory tariffs would cause minimal damage to the US, covering C$37bn of its exports to Canada, but if needed, Canada’s federal government plans to escalate by imposing tariffs on C$110bn worth of goods. Canada’s federal government plans to escalate by imposing tariffs on C$110bn worth of goods.
Canada’s dollar has plunged against its US counterpart and experts warned Canada’s economy could fall into a recession.
“We don’t have a lot of good historical examples where we’ve had tariff shocks of this magnitude,”Tiff Macklem, Bank of Canada governor, told reporters earlier this week. “Exactly how quickly, how big, how people react, what the implications are for inflation – there is a certain zone of uncertainty.”
Trump’s vague demands to “secure the border” have unsettled and confused Canadian negotiators shuttling between Ottawa and Washington with increased frequency and desperation.
“The reality is that a large, uncontrolled bully is using his position as the most powerful political leader in the world, to put pressure on a whole range of allies,” said Lawrence Herman, an international trade lawyer and senior fellow at the CD Howe Institute. “We have to, in Canada and the rest of the world, recognize that we’ve entered a new era.
“With the Trump administration, there are no rules. There is no respect for international treaties or agreements. There is no longer value to the US signature on international documents.”
Mark Carney, the frontrunner to replace Trudeau, said on Friday he was “foursquare” behind all lobbying efforts by Canadian ministers in Washington.
The former governor of the Bank of Canada and Bank of England said he Canada would “and never back down to a bully” and that the “fever” gripping the US would eventually break.
But others remain skeptical that a full resolution is possible.
Herman, who advises governments and companies on trade issues, worries that tension between the two nations has “shattered” a shared history.
“Repairing the long-standing relationship will be very, very difficult. It will depend on good will on the US side and Trump has dissipated most of that good will,” he said. “I don’t see it returning to where it was under the previous era. It’ll be a strained and difficult and contentious relationship going forward, and Canadians have to be prepared for that.”
In Mexico, meanwhile, the government has sent signals it is prepared to do more on migration and fentanyl trafficking – even notching up a record seizure soon after Trump’s threats began – but it has also sought to play down the prospects of a trade war.
“We don’t think [the tariffs] will happen. And if they do, we have our plan,” Sheinbaum said on Wednesday.
“People are worried here, and there is a sense of uncertainty – which is what Donald Trump seeks to create,” said Kenneth Smith Ramos, Mexico’s former chief negotiator during talks over the USMCA free trade deal, struck between the US, Mexico and Canada during the first Trump administration.
“It’s a bit like a game of chicken: the two cars are hurtling towards each other at top speed,” he said. “Mexico has to send the signal that its car is not a little one but a big one that could also hurt the United States.”
Additional reporting by Thomas Graham in Mexico City
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