Presidential Tariff Threats and Executive Orders Target Canada
While much of the attention and analysis this week has been on President Trump’s tariff threats on Canadian goods, two other Presidential Executive Orders stood out from Monday’s signing session, which also threaten to impact both the Canadian economy and fiscal framework.
President Trump also signed executive orders implicating Canada’s Digital Services Taxes, CUSMA’s review, and our subsidies to the EV and battery industry.
Meanwhile, Team Canada continues to hone in on its response to an imposition of American tariffs, including on the questions of “dollar for dollar” retaliation and what to do with our energy and critical minerals exports, and on how to finally eliminate internal trade barriers. Tracking President Trump’s statements on Canada, along with reactions from business leaders, the federal opposition leaders, and Liberal leadership candidates are also on this bulletin’s ticket.
Alex Steinhouse of the GR&PL group provides additional context below.
President Trump’s Executive Order and Threats to Impose Tariffs on Canadian Goods
It was in a response to a question from a Canadian expat White House reporter that President Trump decisively paused any premature celebrations that the existential threat to the Canadian economy was being withdrawn.
While tariffs on Canadian goods managed to escape mention in Monday’s inaugural address, President Trump took the bait from Josh Wingrove’s tariff timeline question later that evening. The President stated that he thinks 25% tariffs on Canada and Mexico will be imposed on February 1 because “they’re allowing vast number of people and fentanyl to come in” to the United States. Trump also seized the moment to also threaten to impose tariffs on China, the European Union and BRICS nations.
President Trump asserted this new tariffs timeline, despite the fact that February 1 is not mentioned anywhere in the Executive Order Trump actually signed that day. That Executive Order directed incoming Trump officials to initiative trade reviews and propose policy recommendations, which could lead to new tariffs on April 1 at the earliest.
At an AI event the following day, President Trump doubled down on the February 1st date: “We’re talking about a tariff of 10 percent on China based on the fact that they’re sending fentanyl to Mexico and Canada. Probably February 1 is the date we’re looking at. For Mexico and China [Trump presumably meant Canada] we’re talking about approximately, approximately 25 percent.”
And then he did so again during virtual remarks at the World Economic Forum in Davos on Thursday, going on to say that Canada has been “very tough to deal with over the years,” and that the US does not need Canadian oil, gas, autos or lumber: "We don't need them to make our cars, we make a lot of them, we don't need their lumber because we have our own forests... we don't need their oil and gas, we have more than anybody." However, Canada can still avoid the tariffs by becoming the 51st state. President Trump also reiterated that the US will be asking NATO members to increase annual military spending to 5 percent of GDP.
President Trump has denied using this threat as leverage in the renegotiation of CUSMA, saying that it exclusively relates to Canada and Mexico having both “allowed millions and millions of people to come into our country that shouldn’t be here. They could have stopped them, and they didn’t.”
But demystifying timeline bluster from fact is seemingly anyone’s guess, and there continues to be no reported White House consensus on the path forward. The President continues to receive conflicting advice on this topic from his inner circle of advisors, which include both “MAGA” economic proponents, along with those from the more traditional economic wing of the Republican Party.
White House trade counselor Peter Navarro suggested earlier that Tuesday that the Executive Order is “the blueprint and the foundation for the tariffs and trade policies that may or may not emerge over the next 100 days.” “You’ve got discussions about the universal baseline tariff. You’ve got discussions about the [CUSMA], which needs to be reviewed in 2026.” However, Mr. Navarro underscored that the decision and timing for it will be Trump’s decision to make.
Whatever the decision on broad tariff imposition, one professor, formerly trade adviser under Prime Minister Stephen Harper, notes that Canada needs to keep its focus on the upcoming CUSMA review, which will put into play questions relating to our supply management system (particularly with respect to dairy sector), shared auto supply chain, Chinese investment in CUSMA countries, Buy American policies and softwood lumber.
Canada’s Digital Services Tax and the EV industry
Two other Executive Orders from Monday drew Canadians’ attention.
One Executive Order centers on another burgeoning trade dispute, involving Canada’s Digital Services Tax. This order instructs the Treasury Secretary and his trade representative to investigate whether other countries’ levy “extraterritorial” taxes or disproportionately target American companies, as well as calling on the US’ withdrawal from the “OECD Global Tax Deal.” They are to report back by March 21, with options for “protective measures or other actions” for President Trump to consider in response.
Canada’s 3% Digital Services Tax mirrors one on the books in 19 other countries. This tax targets domestic revenues by the largest digital players (in four categories: online marketplace, advertising, social media and user data services) regardless of where they are owned or headquartered.
In theory, the Canadian tax is temporary, until an OECD agreement on corporate taxes is reached. However, while Canada had long delayed its own Digital Services Tax waiting for this multinational agreement, the government ultimately decided to forge ahead on its own, and the Canadian tax took effect January 1, 2024 on a retroactive basis dating back to 2022, with the first payments from major digital platforms (annual revenues in excess of CA$20 million), including Amazon, Google and Netflix, due this July. It is estimated that the revenues to Canadian coffers could be CA$7.2 billion over 5 years.
Canada had pushed ahead despite considerable pushback from Canadian and American voices. Former President Biden’s Ambassador to Canada, David Cohen, and former US Trade Representative Katherine Tai had repeatedly and long publicly warned and asserted that this tax was an irritant for the Americans, and it was in breach Canada’s obligations pursuant to CUSMA. To that end, the Americans had already filed for dispute resolution on the tax. Meanwhile, the Canadian Chamber of Commerce repeatedly suggested that the tax could lead to retaliation against Canadian businesses.
While former Finance Minister Freeland had said, as late as November 2024, that Canada would not treat the tax as a bargaining chip in trade talks, Prime Minister Trudeau took a slightly different tone this week, leaving open the possibility of bargaining on it in private.
This week’s developments led University of Ottawa Professor Michael Geist to write that this is yet another defeat for the Liberal Government’s digital policy agenda, which has largely been focused on making “big tech pay its fair share.” Either by way of this Executive Order, the Government’s decision to prorogue, or legal challenges, the Liberals’ laws and policies are either dead or about to become so. In addition to this tax, the list includes the government’s privacy reforms and AI governance framework (Bill C-27), its cybersecurity framework (Bill C-26), its online safety plan (through Bill C-63), the mandated streaming payments arising from Bill C-11, and mandated payments for news links due to Bill C-18.
Meanwhile, President Trump’s Executive Order on energy is also drawing Canadian attention. On top of facilitating more oil production (during his inaugural remarks, the President said “Drill, baby, drill” while also vowing to leave the Paris climate pact), the order states that he is terminating Biden’s “Green New Deal,” immediately pausing the disbursement of Inflation Reduction Act and Infrastructure Investment and Jobs Act subsidies for electric vehicles and batteries. Reports indicate that the President will likely scrap a $7,500 tax credit for new EV purchases as well as other Biden policies supportive of EVs.
Given the Canadian government’s major efforts in attracting and building a domestic EV supply chain, industry, as well as inventory, and the fact that many of the Canadians subsidies are reportedly tied to the American ones being in force, President Trump’s order has serious implications on this side of the border.
The Federal Government’s Response
The Prime Minister convened a Cabinet retreat on Monday and Tuesday focused on Canada-US trade strategy. During a news conference on Tuesday, the Prime Minister said that contingency plans for a variety of scenarios are ready, that everything is on the table, and that he supports “the principle of dollar-for-dollar matching tariffs. It’s something that we are absolutely going to be looking at if that is how they move forward.”
The Prime Minister went on to say that if tariffs are imposed, “the goal will be to get [countervailing] tariffs off as quickly as possible” and to support Canadian businesses impacted by the proposed measure.
It is estimated that this would entail levying $150 billion worth of penalties, to match 25% of the $600 billion in imported goods that would be targeted by President Trump. The Prime Minister has suggested that retaliation would take the form of graduated, escalating tariffs, and it could include export tariffs or restricting energy and critical minerals exports to the US. Other options include redirecting federal defence procurement contracts from the US to other allies such as South Korea and Japan.
Cabinet Ministers, including Finance Minister Dominic Leblanc and Foreign Affairs Minister Mélanie Joly, will continue to speak and meet with their new counterparts in Washington in the days to come, to try to delay or entirely avoid the February 1st threat.
Finally, on the civil service side, the federal government also announced the launch of weekly briefings with industry and labour stakeholders, along with provincial and territorial representatives, on the Canada-US economic relationship.
The First Ministers’ Meeting
Meanwhile, the Prime Minister also convened a virtual First Ministers’ Meeting on Wednesday. Coming out of the meeting, Premier Ford said that he is all in on dollar-for-dollar retaliatory tariffs, and that there is a growing consensus amongst the Premiers to that end. Premier Ford is widely expected to call a provincial election, which may happen as early as next week.
However, it appears that the cracks are bigger than they appeared last week. In the days since Alberta Premier Danielle Smith refused to sign last week’s First Ministers’ communiqué, she has only further distanced herself from the group by meeting with US lawmakers during the inauguration festivities and calling for co-operation instead of retaliation. She brought along members of the Albertan business community and oil sector on her trip to Washington.
On top of increasing our NATO spend and securing our borders, Premier Smith continues to emphasize the importance of building more oil and gas pipelines east and west across the country. Relatedly this week, the President of the Union of BC Indian Chiefs, Grand Chief Stewart Phillip, has reversed his previous opposition to the scrapped Northern Gateway project.
Saskatchewan Premier Scott Moe has also now joined Alberta Premier Smith in not only objecting to any federal plan to apply export tariffs or restrictions on oil and gas or critical minerals, but also to dollar-for-dollar countervailing tariffs.
Instead, Saskatchewan only supports “very targeted” and “very small” counter-tariffs, on up to “a couple of billion dollars” on imports from the US. But he said the counter-tariffs would not be there to “have an impact on the economy,” but to change American “hearts and minds.”
As for Québec Premier François Legault, he stated that while no option is off the table, this does not mean that Québec has consented at this point to blocking or taxing its energy exports. His government also made news this way in taking umbrage with Parti Québécois leader Paul St-Pierre Plamondon taking President Trump’s side in blaming both Canada and Québec for being bad neighbours by not properly securing the border.
The First Ministers did, however, agree on the importance of reducing internal trade barriers within Canada. They agreed to reconvene the Committee on Internal Trade, an advisory body composed mostly of premiers and provincial cabinet ministers, and to have it regularly meet and make recommendations to First Ministers on concrete measures to liberalize trade and strengthen Canada’s economy.
On the agenda is removing some of the exemptions in the Canadian Free Trade Agreement to improve the business climate at home given the uncertainties with American trade. While estimates vary greatly, this could boost GDP between $50 billion and $100 billion a year.
The First Ministers also stressed the importance of “Buying Canadian,” including rethinking cross-border trips and vacations.
What are Business Leaders Saying?
The Prime Minister also convened his Council on Canada-US relations during the Cabinet retreat.
After their session, some of the members spoke to the press on their views on the path forward:
- Former Québec Premier Jean Charest: “A 25 percent tariff, it doesn't make sense — it doesn't jive. And I think it speaks to a dilemma of the Trump administration, of either pursuing a growth agenda or the tariff agenda. And the tariff agenda is [to] the contrary of economic growth.”
- Entrepreneur Arlene Dickinson: “Kevin O'Leary isn’t authorized to speak on behalf of Canadians, and I frankly don’t believe he is speaking on behalf of Canadians [with] what he’s saying. If he was negotiating on our side, I think that would be totally fine. But he’s not, he’s negotiating against us so I don’t think it’s a helpful solution right now.”
- Automotive Parts Manufacturers' Association President Flavio Volpe: “What we don’t do is panic. What we do is lean on the lessons that we learned in [Trump] 1.0. … What we don’t do is always react when he has a little bit of press availability.”
- Entrepreneur Wes Hall: “When someone makes a threat to your livelihood you can’t take it lightly. We can’t sit here and say let’s see what happens and let’s respond. We’ve seen this move before, this is the second time we’ve seen it, and we now have a playbook and are essentially modifying the playbook, dusting it off, and we’re going to enact the things that we need to do to protect our livelihood and protect our economy, and most importantly protect Canadian jobs.”
Meanwhile, Business Council of Canada President Goldy Hyder says that we cannot sustain a dollar-for-dollar tariff war: “[Canada is] one tenth of their economy. They're giant. There's only so long you can sustain that economically. We have to ensure that any actions and counteractions that are taken are effective enough that it's a short-term horizon in which they're being utilized. In the long run, we wouldn't be able to survive. It would be extremely damaging to our economy. It needs to be said. Inflation will return.”
Speaking at an Empire Club of Canada event on Tuesday, Canada's former chief trade negotiator Steve Verheul, said Alberta going its own way in recent weeks "has significantly undermined Canada's position." If Mr. Trump imposes his promised 25-per-cent tariffs, “clearly, we have to retaliate.” The main reason to retaliate is to start to try to level that bargaining table somewhat. We need to put some things on our side of the bargaining table to gain some leverage and have a more balanced discussion. If we don’t retaliate, we’ll just keep paying and paying concessions, and we’ll never know where the end point is.”
Finally, in remarks delivered to the Montreal Chamber of Commerce, National Bank CEO Laurent Ferreira called for Canada to relax regulatory and tax burdens to increase competitiveness and productivity, and implement its own “Buy-Canada Act”, relating to procurement, research and development, and artificial intelligence for defence and national-security applications.
Opposition Parties
Conservative leader Pierre Poilievre has called for the Prime Minister to reconvene Parliament immediately, to “pass new border controls, agree on trade retaliation and prepare a plan to rescue Canada’s weak economy.” Meanwhile, Conservative MP Jamil Jivani, a good friend of Vice-President JD Vance, attended the Presidential Inauguration.
NDP Leader Jagmeet Singh clarified some of the uncertainty that he created last week in terms of whether the NDP wants to defeat the government. Mr. Singh confirmed once more the NDP’s intention to vote against the Liberal government at “the earliest opportunity,” regardless of its leader. Should the next Liberal leader choose to reconvene the House on March 24th rather than dissolving it for an election call instead, the first confidence votes would be expected shortly thereafter.
In a week that had the Bloc Québécois seeing a path towards become the official opposition after the next election, Bloc Québécois leader Yves-François Blanchet also joined Premiers Smith and Moe, and distinguished himself from Premier Legault wanting to leave all options open, in coming out strongly against the idea of restricting energy exports, calling it “absurd.” "If you disrupt the habit of Americans sourcing energy from Québec and Canada, once they have found other sources of supply, you will be in a very disadvantageous position to negotiate new contracts. In the long term, it's a bit of a scorched-earth policy," he said.
And while Blanchet supports responding to U.S. tariffs with counter-tariffs, he said Canadian leaders should avoid talking about "retaliation" or a "trade war”: "That's not how you create the conditions for proper negotiations," Blanchet said. "American negotiators won't negotiate by pounding their fists on the table. They will eventually negotiate rationally. Reason will prevail."
Liberal Leadership Race
The presumed front-runners for the Liberal Party leadership, Mark Carney and Chrystia Freeland, both vowed to impose dollar-for-dollar tariff retaliation of “historic proportions.” On this, Mr. Carney said that if President Trump follows through on his threat, this will "demand the most serious trade response in our history. Dollar-for-dollar retaliatory tariffs by Canada should be a given and they should be aimed where their impacts in the United States will be felt the hardest. Every dollar raised by Canadian tariffs should be used to help support Canadian workers through this fight."
Meanwhile, building on last week’s announcement that she is proposing to drop the “Carbon Tax” owing to its unpopularity amongst Canadians, Freeland made news on Wednesday by suggesting a Liberal government under her leadership would also drop the increase to the capital gains inclusion rate. She suggests that the policy reversal is in response to the increased risk brought on by the Trump presidency of Canadian investments flowing to the US.
Both Carney and Freeland continue to pick up caucus endorsements, with Mr. Carney pulling ahead in this regard (including getting the endorsements of former leadership contenders, such as Mélanie Joly, Steven MacKinnon, and Jonathan Wilkinson, with François-Philippe Champagne expected to formally endorse him on Sunday). At the time of writing, Minister Karina Gould, former MPs Frank Baylis and Ruby Dhalla, and current MPs Chandra Arya and Jaime Battiste are also going through the process of officializing their candidacies.
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