WASHINGTON, D.C. — Ottawa and Washington have been engaged in a rhetorical tit-for-tat over tariffs since talks broke down and the U.S. imposed Section 338 duties on hundreds of Canadian imports over the weekend.
Prime Minister Mark Carney explained why he pulled his team back and promised retaliatory tariffs , while President Donald Trump posted to social media several times, threatening Canada with even higher auto tariffs and denying he made any demands that meddled with French culture .
On Tuesday morning, Carney’s team showed its hand on the retaliatory tariffs it promised, revealing the list of products to be hit with duties starting September 8. The plan is to apply 50 per cent tariffs on steel and aluminum imports from the U.S., as well as furniture, clothing, milk, plywood, paper, honey, doors and windows, smartphones, and perfumes, among others. Additional products will face 25 per cent tariffs, including carpets and textiles, cheese, large kitchen appliances, and seafood.
So will the retaliation be enough to get Washington’s attention in a way that focuses the U.S. administration on sealing a deal or should Canada go even further?
“Right now, the (U.S.) tariffs affect a narrow set of products, and I would imagine that the Canadian retaliation would also start off affecting a narrow set of American products relative to everything that the U.S. exports to Canada,” said Alfredo Carrillo Obregon, a trade policy analyst at the Cato Institute in Washington, before the Canadian list was revealed.
“Over time, you continue escalating, and then you’re really going to touch on products that are important for consumers and important for businesses on both sides of the border.”
Ottawa said its list was crafted to protect the “domestic market share for Canadian companies,” rather than to target politically sensitive products in U.S. battleground states ahead of the midterm elections this November.
This makes sense, according to Graeme Thompson, senior analyst with Eurasia Group’s Global Macro team, because Canada-imposed tariffs will cost Canadians.
“Tariffs are a tax. It’s as simple as that,” said Thompson. “If you put a tariff on a good that you are importing, it is more expensive for consumers. Full stop.”
That said, Canada’s retaliatory list — intentionally or not — is still likely to have a disproportionate political effect in battleground states with large steel, auto, appliance, agricultural, paper, food-processing or consumer-goods sectors. Michigan and Ohio come to mind for steel and autos, while North Carolina and Georgia could also feel the effect owing to their furniture and appliance markets. Iowa, Wisconsin, and Minnesota, meanwhile, are vulnerable through their dairy, agricultural, and food-processing sectors.
Before the list dropped, Thompson reasoned that Canada would try to identify products that were of particular importance to swing districts in the U.S. House and swing states in the U.S. Senate, noting “that’s been Canada’s approach in the past,” he said.
But can pressure ahead of the midterms move the needle much?
Thompson and his colleagues at Eurasia Group expect the Dems to win the House with a moderate majority, but the Senate will be a closer call. To win there, he said, “the Democrats have to maintain four of the seats that they currently hold that are up for re-election and flip four from the Republicans.”
Inu Manak, senior fellow at the Peterson Institute for International Economics, said targeting U.S. midterm battlegrounds could create political pressure on the Trump administration, but it could also risk a bigger backlash.
“If you go the midterm route, you might infuriate Trump even further,” she said, noting that another option could be to target states that do the most trade with Canada. That approach, she warned, “might infuriate your closest trading partners further.”
Manak said she sees little prospect of a deal before the midterms and suggested that Canada could gain leverage afterward if Republicans suffer significant losses and Trump becomes more eager to demonstrate that he can still conclude deals. But she also cautioned that even a future Democratic president would not necessarily restore the Obama-era approach to free trade.
“Even President Biden, while he was trying to strike a more positive tone with allies and did a lot to repair the relationship, he still maintained a lot of Trump’s tariffs,” she said.
Thompson also sees little hope for change on the U.S. trade file, whatever the congressional makeup.
“I don’t think it changes much from a policy or procedural point of view because so much of this is driven out of the White House and by executive powers that Congress has essentially delegated,” he said.
“We’re not past peak tariff and peak protectionism by a long shot.”
Still, a Democrat-controlled House, Thompson noted, “would be very likely to want to push on cost-of-living issues” which could be useful in encouraging the president to lower some tariffs.
Both Obregon and Andrew Hale, fellow at Washington’s Advancing American Freedom, pointed to the legal route as they expect the 338 tariffs could be challenged in U.S. courts.
“These 338 tariffs are totally invalid, and the courts will get rid of them and refunds will be paid with interest to the Americans that pay these tariffs,” said Hale.
“Customs and Border Protection will also spend taxpayer dollars processing these refunds,” he added, pointing to the waste of time and money.
But Hale does not see a reason for Canada to wait on lawsuits or political dominoes to fall — and he questioned waiting until September 8 for retaliation. The retaliatory tariffs, after all, could be much broader and take effect immediately.
“Canada has the economic arsenal to respond to the Trump administration’s latest round of bullying,” he said, pointing out that Trump’s omission of potash, critical minerals, and energy from the “unlawful 338 tariffs” was telling.
“The administration knows the U.S. needs goods from Canada,” he said, noting how the U.S. gets 80 per cent of its potash for fertilizer from Saskatchewan and U.S. industry benefits from the Canadian heavy crude oil that comes down to the U.S. for refinement.
“If Canada were to stop exporting energy to the United States, most of New England would cease to operate. New England and other parts of the U.S. purchase hydroelectric power from Canada,” he said.
So should Ottawa go full-tilt on tariffing or blocking energy and electricity exports to the United States? Would being aggressive now help strengthen Ottawa’s hand to get a deal back on track?
Manak doesn’t think Carney will go this route and said it would be a “pretty severe action” if he did.
While Ontario Premier Doug Ford has mentioned energy tariffs as an option, Manak was mindful of the domestic political calculus for Carney.
“A lot of those energy exports are coming from Alberta, and I would imagine that Carney does not want to create more tension between the federal government and Alberta at this moment when there is a separation vote (looming).”
Instead, she believes Carney will tread carefully on energy matters while keeping it in his toolkit.
“It’s something that he could certainly keep in his back pocket. You don’t really have to put punitive measures on for there to be leverage,” she said. “You just have to threaten to use them.”
National Post
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