Booze, oil and orange juice: How Canada could fight Trump tariffs

Canada is preparing to respond strongly to the tariffs imposed by US President Donald Trump on its products. Recently, Trump announced a 25% tariff on Canadian imports, while Canadian energy resources would face a lower 10% rate. Before this announcement, Prime Minister Justin Trudeau stated, 'It's not what we want, but if he moves forward, we will also act. ' Tariffs are a significant part of Trump's economic strategy, which he believes will help grow the US economy, protect jobs, and increase tax revenue. However, economists warn that these tariffs could have severe immediate effects on Canada's economy and could also lead to higher prices for American consumers. Trudeau expressed concern, saying, 'I won't sugarcoat it - our nation could be facing difficult times in the coming days and weeks. ' Canada is trying to avoid a trade war and has pledged over C$1 billion to enhance security at its shared border with the US, a key issue for Trump, who seems to be using tariffs as a negotiating tool. Trudeau mentioned that all options are still on the table, and here are four potential actions Canada could take and their possible consequences. 1. Targeted tariffs on specific US goods. Canada has already engaged in a tariff 'war' with Trump in the past. During his first term, Trump imposed a 10% tariff on Canadian aluminum and a 25% tariff on Canadian steel, citing national security concerns. In response, Canada imposed tariffs on select US goods, including Florida orange juice and whiskey from Tennessee and Kentucky, the latter being the home state of then-Republican Senate Leader Mitch McConnell. After a year, both countries agreed to lift the tariffs. Senior Canadian officials have indicated that if Trump imposes tariffs again, the immediate response would likely be targeted. According to US government data, 17% of US exports go to Canada, while more than 75% of Canada's exports go to the US. This significant imbalance means Canada could suffer a larger economic blow in any trade war with the US, which is why targeted tariffs are often the first and safest approach. By focusing on specific goods, Canada can strike back at the US without broadly punishing its own citizens, as tariffs can quickly raise prices for consumers at home. This strategy is also why officials are promoting a 'Buy Canadian' campaign to mitigate the impact of potential retaliation. However, some analysts argue that Trump is less politically vulnerable this time, as 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 counselor at the Canadian embassy in Washington DC. 2. Dollar-for-dollar tariffs. Another strategy Canada employed during its first tariff conflict with the US was to implement dollar-for-dollar tariffs. Canada imposed identical tariffs on US aluminum and steel, ensuring that the total dollar value of the American goods taxed equaled the US tariffs on Canadian exports. At that time, this amounted to around C$16. 6 billion. Currently, Canada is reportedly preparing a first round of dollar-for-dollar tariffs on about $37 billion worth of goods, which could be expanded to another C$110 billion. The broader Trump's tariffs are, the more goods Canada could tax in response. However, not all of Canada supports dollar-for-dollar tariffs. Scott Moe, the leader of the mineral-rich province of Saskatchewan, has stated that broad tariffs on US goods would 'rip this country apart. ' Karaguesian warned that the proposed US tariffs on Canadian goods could push Canada into a recession. If Canada retaliated with dollar-for-dollar tariffs, it could lead to inflation, resulting in a situation known as 'stagflation,' characterized by high unemployment and rising prices. Clark noted that whatever decision Canada makes, political considerations will likely be paramount. Polls indicate that a majority of Canadians support retaliation, and many Canadian business leaders favor targeted, dollar-for-dollar tariffs. Canadian politicians may feel pressured to respond more forcefully if it boosts their approval ratings. 'We're talking about political decisions, which are not always rational. ' 3. The energy 'nuclear' option. One of Canada's most valuable assets is its energy resources. Northeastern US states like Vermont, New York, and Maine heavily rely on electricity supplied by neighboring Canadian provinces. British Columbia and Manitoba also provide energy to western and Midwestern regions of the US. According to Canadian government data, about 30 states receive some of their electricity from Canada. Additionally, Canada is the top supplier of crude oil to the US, accounting for 60% of total oil imports, according to the US Energy Information Administration. Doug Ford, Ontario's premier, has suggested that Canada could cut off energy supplies to the US to impact American consumers at the gas pump. Trump stated that Canadian oil would be subject to a lower 10% tariff. However, Canada still has the option of imposing energy restrictions or taxes to inflict economic 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 Karaguesian. However, this move would be contentious, particularly with the oil-rich province of Alberta, which has refused to agree to tax its oil and gas exports, arguing that such actions would disproportionately harm its economy. 4. Pulling US alcohol or not retaliating at all. Other ideas have been proposed. Ford suggested that Ontario could remove American-made alcohol from store shelves, indicating a different approach where various provincial leaders could define their own responses. Another option is to refrain from retaliation for the time being. For weeks, Canadian officials have been meeting with their American counterparts in Washington, D. C. , to prevent any American tariffs from being implemented. Recently, Foreign Minister Melanie Joly met with Secretary of State Marco Rubio to convey that tariffs would be detrimental to both countries and that Ottawa is addressing US concerns regarding border security and fentanyl trafficking. 'We need to continue to engage,' she told reporters. Canada has also indicated that it could introduce a relief program for businesses affected by the potential tariffs, similar to those implemented during the Covid pandemic. Some argue that, given the economic costs of retaliation, Canada should focus on diversifying its trade relationships and increasing domestic production. 'We're a natural resource superpower,' Karaguesian stated, suggesting that Canada could use the tariffs as an opportunity to harness its potential and sell its products to other markets.