In this update, Alex Steinhouse of the Fasken Government Relations and Political Law team dives into more American tariffs and sovereignty threats and the Canadian response.
(Some Of) the Past Week’s American Tariffs and Sovereignty Threats
Early in the week of February 10, President Trump signed Executive Orders imposing universal 25% tariffs on steel and aluminum imports, with no exceptions or exemptions. Once they are to take effect on March 12th, the expanded tariffs will cover all imports, effectively cancelling previous arrangements with Canada, the European Union, the United Kingdom, Japan, Australia and other countries.
Specific to Canada, these Executive Orders end exemptions that Canada had negotiated during the last Trump Presidency. As a reminder, in 2018, during the renegotiation of NAFTA, the President had imposed section 232 national security tariffs of 25% on Canadian steel and 10% on Canadian aluminum.
Following retaliatory tariffs by Canada, the two countries ultimately came to an agreement in May 2019 to exempt steel and aluminum products, subject to Canadian aluminum or steel products not exceeding, meaningfully beyond historic volumes of trade over a specified period.
With respect to steel, the Trump administration justifies these new tariffs by stating that “steel articles are being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States.” It further points out that “imports from Canada have increased 18 percent since Canada was excluded from the section 232 tariffs” imposed in 2018.
The Executive Order goes on to state that imports have surged “in excess of historical norms of trade across numerous key product lines” “while authorities in those countries have supported otherwise uncompetitive producers with subsidies and other interventions that have exacerbated the global excess capacity crisis.”
Meanwhile, with respect to aluminum, President Trump specifically cites Canada to justify the tariffs: “in particular, the volume of US imports of primary aluminum from Canada in 2024 was approximately 18 percent higher than the average volume for 2015 through 2017.” It further notes that the scope of the tariffs will be expanded to cover additional “derivative aluminum articles.”
The White House has subsequently said that tariffs would be cumulative, which means goods specifically targeted such as steel and aluminum, could face tariffs of 50%, when combined with the initial 25% tariff imposed on Canadian goods (except for energy products that would be subject to a 10% tariff).
The Trump administration has also floated auto-specific tariffs against Canada this week. President Trump said on Fox News on Monday, "if we don't make a deal with Canada, we're going to put a big tariff on cars. Could be a 50 or 100 per cent because we don't want their cars, we want to make cars in Detroit." The President has accused Canada of “stealing" the car industry from the United States.
Then on Thursday, February 12, the President rolled out his plan to increase reciprocal tariffs globally to match tax rates that other countries charge on imports. This Memorandum on Reciprocal Trade and Tariffs asserts that value added taxes are a trade barrier to be included in any reciprocal tariff calculation.
Canadian sources say that President Trump considers the GST as such a trade barrier; the President, in fact raised it in his phone call with Prime Minister Trudeau on February 3rd. The Prime Minister would have reminded the President during that call that many states, including his adopted home state of Florida, have a sales tax.
As we have expected, the fact sheet on the Memorandum also specifically calls out Canada’s 3% Digital Services Tax, for which the first payments are only due this June (retroactive to 2022): “Though America has no such thing, and only America should be allowed to tax American firms, trading partners hand American companies a bill for something called a digital service tax.” It adds that France and Canada collect US$500 million a year in that tax from American firms.
The memorandum also aims to counteract non-tariff trade barriers such as burdensome regulations, government subsidies and exchange rate policies that the White House contends restricts the flow of US products to foreign markets.
In justifying this step, the President said this was necessary to even out America’s “unfair” relationships and stop other countries from taking advantage of the United States on trade.
These new tariffs will come into effect once President Trump’s trade and economic team calculate broad new tariff levels, based on their study of bilateral tariff and trade relationships across the globe. The President’s nominee for Commerce Secretary, Howard Lutnick, suggested this could be as soon as April 2, even while the memorandum itself gives 180 days to complete the study and come up with a plan. The White House also suggested that the President was not ruling out a further “universal” tariff later to reduce the US trade deficit.
While signing this memorandum, the President once more criticized Canada’s defence spending, and stated that we have been “very bad” to the United States on trade.
He then went on to say: “Canada is going to be a very interesting situation because we just don’t need their products, and yet they survive off the fact that we do 95 per cent of what they do.” “Why would we pay US$200 billion a year in subsidies to Canada if they’re not a state? You do that for a state, but you don’t do that for somebody else’s country.”
The President also added that Canada is a “serious contender to be [the United States’] 51st state.” When asked about the delay in implementing the tariffs against Canada, Mr. Trump said he spoke to “Governor Trudeau on numerous occasions and we’ll see what happens.”
Finally, the President said Russia should be readmitted into the G7, following his 90-minute call with President Putin this week in which they begun to discuss a peace plan for Ukraine (Canada is the host to the G7 this year).
Canadian Federal Responses
Prime Minister Trudeau was at international conferences in Europe last week. At an Artificial Intelligence summit in Paris, he briefly met Vice-President JD Vance shortly after the President’s steel and aluminum tariffs announcement.
The Prime Minister said that he warned the Vice-President that this new round of potential tariffs will harm his home state of Ohio: "It was just a quick greeting exchange," Mr. Trudeau said. "I highlighted that $2.2 billion worth of steel and aluminum exports from Canada go directly into the Ohio economy, often to go into manufacturing there. [The Vice-President] nodded, and noted it, but it wasn't a longer exchange than that."
The Prime Minister went on to say that the federal government will work with its American counterparts over the coming weeks to try to avert their imposition, and he hopes it does not have to come to reciprocal tariffs: "If it comes to that, our response, of course, will be firm and clear. We will stand up for Canadian workers. We will stand up for Canadian industries."
It does sound like all options to respond to these steel and aluminum options are on the table, including a similar reciprocal tariff approach to what was done in 2018 against the last round of steel and aluminum tariffs, export tariffs or trade restrictions, and developing new export markets.
One study suggests that Canada accounts for around 23% of US steel imports, while providing nearly 60% of American aluminum imports, including in critical and/or national-security sensitive sectors.
The United Steelworkers have said there is $20 billion worth of steel traded between Canada and the US every year, with Canada importing 39% of its steel from the US and exporting 94% of its production there. Meanwhile last year, Canada exported $15.9 billion worth of aluminum to the US and imported $4.1 billion in American aluminum.
Bea Bruske, President of the Canadian Labour Congress, said the 2018 steel and aluminum tariffs had a “devastating impact” on Canadian workers: “Thousands of workers faced layoffs and uncertainty, and the effects rippled across manufacturing, construction and supply chains,” Bruske said, adding that 2,000 workers and 500 employers relied on emergency government support.
Canadian steel companies have affirmed that the 2018 tariffs forced their businesses to diversify their revenue streams but this wave of tariffs is still expected to have significant impacts.
However, given that US industry relies heavily on Canadian steel and especially on aluminum, it is thus possible that Canada may adopt a different approach than reciprocal tariffs, such as by imposing export taxes or other restrictions on aluminum that is critical to the US defense, aviation, and automotive industries.
This week also saw Finance and Intergovernmental Affairs Minister Dominic LeBlanc meet Howard Lutnick at the White House. Minister LeBlanc confirmed that he had a positive conversation with his counterpart about “how steel and aluminum sectors in Canada and the United States are so integrated and how dependent the economies are in doing this work together.” He is optimistic as to the chances of arriving at a mutually beneficial arrangement for both countries, and they have committed to continuing the conversation in the days to come.
Meanwhile, Public Safety Minister David McGuinty continues his work implementing Canada’s border security plan and demonstrating its efficacy to the Americans. He was at the Lansdowne, Ontario border crossing this week, showing off a newly-leased Black Hawk helicopter in action to Fox News, and said that Canada is imminently going to list cartels in the Criminal Code for trafficking in fentanyl.
Finally, former Canadian Prime Minister Stephen Harper received cross-partisan praise for saying this week: “I would be prepared to impoverish the country and not be annexed, if that was the option we’re facing. Now, because I do think that if Trump were determined, he could really do wide structural and economic damage, but I wouldn’t accept that. I would accept any level of damage to preserve the independence of the country.”
The Premiers Go to Washington
Canada’s Premiers visited Washington last week, and through the work of an American lobbying firm, 11 of them attended a last-minute organized meeting with two Trump administration officials at the White House.
The Premiers described the meeting as a positive opportunity to make the case against tariffs. However, one of the Trump officials in question put out a statement afterward saying the officials “never agreed” that Canada would not be the 51st state. On background, federal government sources were unimpressed with this meeting, saying that the Premiers made a series of “rookie errors” in taking it without sufficient preparation, and that the Premiers underestimated the strong views of the Trump administration with respect to the imposition of tariffs.
Québec Premier François Legault also drew attention this week for some of his statements in Washington.
The Premier suggested that Canada should immediately renegotiate CUSMA, and that he was willing to make compromises in that process, specifically in the aeronautics, forest and aluminum industries, but not on supply management or on the protection of the French language and culture. The Premier also suggested Canada should impose export taxes on aluminum exports to the United States, in order, in part, to spur Québec producers to diversify their export markets.
The Premier also shared a Trump anecdote in an interview with Politico, from his pre-political career at Air Transat:
“In 1989, Trump launched a regional airline service between Boston and New York named Trump Shuttle. Air Transat's airline designator code — the two-character shorthand recognized worldwide — was "TS."
Trump wanted to buy it. "I said, 'No f--kin’ way,' Legault recalled Wednesday. (Trump's airline was instead given the code TB.)
When the pair reconnected in Paris last year at the reopening of Notre Dame Cathedral, Legault asked Trump if the story rang a bell.
“Yeah, I remember,” Trump is said to have replied.
"I asked him, 'Do you remember my answer?' He said, 'No.' I said, I told you 'No f--kin’ way.’ He told me, 'You’re my type of guy.'"
On Thursday, the Territorial Premiers also participated in a conference to advocate for joint US-Canadian collaboration on Northern development, in which they advanced that this is key to continental security and diplomacy, and will bring tremendous economic opportunity.
Meanwhile, British Columbia’s finance minister announced that the provincial government is cancelling its planned $1,000 grocery rebate and pausing government hiring, as the province braces itself for American tariffs. Minister Brenda Bailey said the province is already seeing economic effects from the tariffs threats, and that it would be wrong to underestimate their impact.
