Booze, oil and orange juice: How Canada could fight Trump tariffs
2025-01-31
Category: economic

Canada has been weighing its options in response to a threat of tariffs from US President Donald Trump. Trump has said he could levy a 25% tariff on Canadian imports as soon as Saturday.Tariffs are a central part of the economic vision of the returning US president. He sees them as a way of growing the US economy, protecting jobs and raising tax revenue.Economists suggest that such a move could have devastating immediate impacts on Canada's economy - while also leading to higher prices for Americans.Canada is trying to avoid a trade war altogether. It has pledged more than C$1bn ($690m; £560m) to boost security at its shared border with the US - a key point of contention for Trump, who appears to be using tariffs as a negotiating tactic.Canada has indicated its retaliation would be targeted and gradual, depending on what the possible US tariffs look like. Officials in Ottawa have been drafting a response, but say they are not ready to make the details public. Prime Minister Justin Trudeau has also urged shoppers to buy more made-in-Canada goods, and officials are looking at removing barriers to trade between the country's provinces. Here are four options Canada has on the table, and their possible impacts.
1. Targeted tariffs on select US goods
Canada has already fought one tariff "war" with Trump.During his first term, the US president slapped 10% tariffs on Canadian aluminium products and 25% tariffs on Canadian steel, citing national security concerns.Ottawa retaliated by imposing tariffs on select goods, which were chosen to send a political  message to Trump and his allies.It put levies on Florida orange juice, and whiskey and bourbon from Tennessee and Kentucky - the latter being the home of then-Republican Senate Leader Mitch McConnell.Both countries ended up agreeing to lift the tariffs a year later. Senior Canadian officials recently told local media that if Trump imposed tariffs again, the immediate response would likely be targeted. According to US government data, 17% of US exports go to Canada. More than 75% of Canada's exports go to the US.Canada stands to suffer a larger economic blow in any trade war with the US and this stark imbalance is why targeted tariffs are often the first and safest approach, said Peter Clark, a lawyer who previously worked on trade policy issues in Canada's federal finance department. By targeting select goods, Canada can hit the US without widely punishing its own citizens, as tariffs can immediately raise prices for consumers at home.This approach is also why officials are pushing a "Buy Canadian" campaign as a way to lessen the impact of a potential retaliation.But pundits argue that Trump is less politically vulnerable this time, given that he cannot run for a third term in the White House. "You won't have the same impact as last time," said Julian Karaguesian, an economics lecturer at McGill University in Montreal and a former finance counsellor at the Canadian embassy in Washington DC.
2. Dollar-for-dollar tariffs
Another move Canada made in its first tariff war with its neighbour was to apply dollar-for-dollar tariffs.It slapped identical tariffs on US aluminium and steel, and ensured the total dollar value of the American goods it taxed equalled the US tariffs on Canadian exports. That came up to around C$16.6bn at the time.This time, the possible use of dollar-for-dollar tariffs could be much larger, with Canada reportedly preparing a first round on about $37bn of goods, according to official sources quoted in Canadian media.That could be expanded to another C$110bn worth of goods.The challenge is that Canada still does not know just how sweeping Trump's tariffs would be. The more sweeping they are, the more goods Canada would have to tax in response.Not all of Canada is on board with dollar-for-dollar tariffs. Scott Moe, leader of the mineral-rich province of Saskatchewan, has said that broad levies on US goods would "rip this country apart".Mr Karaguesian said the promised US tariffs on Canadian goods could plunge the country into a recession. If Canada responded with dollar-for-dollar tariffs, it could lead to inflation.This would result in "stagflation," he said, referring to a combination of high unemployment and rising prices.Mr Clark said that whatever decision Canada took, politics would likely be top of mind. Polls suggest a majority of Canadians support retaliation, and that many Canadian business leaders want targeted, dollar-for-dollar tariffs.Canadian politicians might be pushed to respond more forcefully if it means a boost in approval, Mr Clark said. "We're talking about political decisions, which are not always rational."
3. The energy 'nuclear' option
One of the most valuable assets in Canada's arsenal is energy.North-eastern US states like Vermont, New York and Maine significantly rely on electricity sold to them by neighbouring Canadian provinces. British Columbia and Manitoba also supply energy to western and Midwestern regions of the US.About 30 states receive some of their electricity from Canada, according to Canadian government data.Canada is also the top supplier of crude oil to the US, making up 60% of total oil imports, according to the US Energy Information Administration.Doug Ford, Ontario's premier, has suggested that Canada cut off Americans' supply to pinch Americans at the petrol pump.Trump suggested on Thursday that oil and gas could be exempt from US tariffs but Canada still has the option of energy restrictions or taxes to inflict pain."The only thing that would really sting in the immediate to short-term is if energy prices went up, because Trump himself campaigned on bringing energy prices down very quickly," said Mr Karaguesian.But the move would be contentious, especially with the oil-rich province of Alberta - which has refused to sign off on taxing its oil and gas exports, arguing that doing so would disproportionately hurt its economy.
4. Pulling US booze - or not retaliating at all
Other ideas have been floated.Ford said that Ontario could pull American-made alcohol off shop shelves in the province, signalling a different approach in which different provincial premiers could define their own responses.Another option is not retaliating - at least for now. For weeks, Canadian officials have been meeting their American counterparts in Washington DC in a bid to stave off any American tariffs in the first place.On Wednesday, foreign minister Melanie Joly met Secretary of State Marco Rubio to deliver a message that tariffs would be bad for both countries, and that Ottawa was addressing US concerns about border security and fentanyl trafficking."We need to continue to engage," she told reporters.Canada has also signalled that it could bring in a relief programme for businesses harmed by the possible tariffs, similar to those introduced during the Covid pandemic.Some argue, given the economic costs of retaliation, that Canada should instead focus on diversifying its trade relationships and increasing domestic production."We're a natural resource superpower," Mr Karaguesia said, adding that the country could use the tariffs as a push to harness that potential and sell its products elsewhere.