Donald Trump has proposed a 25 percent tariff on imports from Canada and Mexico, aiming to bolster border security and combat drug trafficking, particularly fentanyl. This shift in focus to the northern border raises security concerns, with rising illegal crossings and potential terrorist threats highlighted by officials. In response, Canada is strategizing to reinforce relations and may consider retaliatory tariffs if negotiations fail, impacting significant sectors of their economy amid risks to the USMCA trade agreement.
Trump’s Bold Tariff Proposal
On Monday, Donald Trump took to his social media platform, Truth Social, to announce his intentions for his first day in office: implementing a hefty 25 percent tariff on imports from Canada and Mexico. This announcement comes in the wake of the USMCA free trade agreement, which Trump himself negotiated in 2018 as a replacement for NAFTA. Should Trump act on his threat, the future of this agreement, which is set for renegotiation or extension in 2026, could be at risk.
Interestingly, Trump framed this potential tariff not merely as a trade tactic but as a lever to compel Canada and Mexico to enhance their border security measures. He indicated that the tariff would remain in place until both countries effectively curbed the influx of drugs, particularly fentanyl, and illegal immigration into the United States.
Shifting Focus to the Northern Border
In a surprising turn, the focus has shifted from the traditionally contentious southern border to the northern border with Canada. The discourse surrounding the southern border has long been centered on issues like migration and drug smuggling, but Trump’s announcement highlights the perceived vulnerabilities along the northern frontier. Tom Homan, Trump’s newly appointed chief border protection officer, emphasized in a recent television interview that the Canadian border poses significant national security risks.
Homan warned that individuals from countries known for terrorism could exploit the Canadian border due to a lower presence of American border agents compared to the southern border. While illegal crossings from Canada have historically been fewer than those from Mexico, recent statistics show a sharp increase in attempts, rising from approximately 27,000 in 2021 to over 198,000 this year. The potential for terrorist-related border crossings and the smuggling of fentanyl from Canada could pose serious challenges that the new administration will need to address promptly.
In response to Trump’s threats, Canadian Prime Minister Justin Trudeau is taking the situation seriously. Shortly after Trump’s election, Trudeau convened a special committee of cabinet members to strategize on US relations. Following a phone call with Trump, he called for a crisis meeting with provincial leaders to enhance border security initiatives.
Canadian business leaders are also wary of Trump’s tariff threats, given that the United States is Canada’s largest trading partner, accounting for about 75 percent of its exports. The implications for key sectors, particularly oil and gas, could be severe; a study from last September projected that even a modest 10 percent tariff could result in a 2.4 percentage point reduction in GDP growth over the following two years.
As Canada considers its options in light of these threats, two primary strategies are emerging. First, maintaining open lines of communication with Trump’s inner circle and American partners who share Canadian interests is vital. Given the intertwining supply chains between the two nations, tariffs could also adversely affect parts of the American economy, necessitating lobbying efforts from affected sectors.
If diplomatic efforts fail to yield results, Canada may need to consider retaliatory measures. Trudeau has experience in this arena, having previously responded to Trump’s tariffs on steel and aluminum in 2018 with counter-tariffs that ultimately led to negotiations for a new trade agreement. Potential targets for these counter-tariffs could include politically sensitive sectors such as agriculture or influential companies like Tesla and Apple, which import products into Canada.