“Liberation Day” arrived on Wednesday, April 2nd, and while the March 26th Executive Order placing tariffs on Canadian automobiles came into effect at midnight, there were surprisingly no other impacts for Canada on President Trump’s chart of global tariffs that he displayed from the podium at his “Make America Wealthy Again” event in the White House Rose Garden. For those watching live, it was a stressful few minutes of squinting at an out-of-focus chart before confirmation came through other channels.
The status quo trade war is already deeply reverberating across both the Canadian economy and the federal election currently underway. But the new Executive Order did not create the long-feared compounding effect on the already existing (and devastating) tariffs being applied to Canada.
Instead, most other national economies were hit with significant new tariffs, as the new regime is being applied to over 100 jurisdictions. This includes Canada’s neighbour, the French overseas collectivity of Saint Pierre and Miquelon, which was subjected to 50 percent tariffs, seemingly based on the one-off month of July 2024 when American customers anomalously bought $3.4 million worth of (presumably) seafood (no goods otherwise sold last year to the US), while only importing $100,000 worth of American goods that year. Meanwhile, uninhabited remote islands, such as Svalbard, Jan Mayen, as well as Heard and McDonald Islands were also seemingly inexplicably subjected to tariffs.
Americans are already bracing for inevitably higher prices on their Taiwanese-made laptops, French wines, or Vietnamese-made sneakers. And stock markets have tumbled in the aftermath of the “Make America Wealthy Again” announcement.
In this week’s update, Alex Steinhouse of the Fasken Government Relations and Political Law team surveys the early impacts of President Trump’s latest actions, while looking at Canada’s early response to this week’s developments.
Global “Reciprocal” Tariffs
While proudly asserting a “declaration of economic independence,” President Trump imposed sweeping global tariffs that he claimed were “retaliatory” at a Rose Garden ceremony attended by most of his Cabinet. Notably absent was Elon Musk, who has previously been a star attendant at similar past major Trump events. Rumours swirl that Mr. Musk may soon be departing his formal role with the Trump administration, following the high-profile defeat of the conservative candidate he financially, vocally and unsuccessfully supported for the vacant Wisconsin State Supreme Court seat.
“Liberation day” brought the establishment of a universal baseline tariff of 10 percent, and additional rates that apply to certain countries that he labeled the “worst offenders.” Some of the tariff rates announced — 34% for China (added to the 20% tariffs already previously imposed this Presidency), 26% for India, 20% for the European Union (“they rip us off,” the President said), 24% for Japan — were much higher than what economists and policy experts had been expecting. Even countries such as Australia and Brazil that buy more from the US than sell to it, were hit with tariffs.
President Trump announced the tariffs under the authority of the International Economic Emergency Powers Act.
The President said that these tariffs were calculated by combining the rate of tariffs imposed on American goods and non-monetary barriers such as currency manipulation, then divided in half: “The tariffs will be not a full reciprocal. I could have done that, I guess. But it would have been tough for a lot of countries,” the President said. As such, he asserted that they were “retaliatory/reciprocal,” suggesting it was based on what countries already impose on US goods via existing tariffs,
However, James Surowiecki quickly figured out that the rates were in fact not “reciprocal”: “For every country, they just took the trade deficit [in goods, not services] with that country and divided it by the country's exports to [the United States]. So, we have a $17.9 billion trade deficit with Indonesia. Its exports to [the United States] are $28 billion. $17.9/$28 = 64%, which Trump claims is the tariff rate Indonesia charges us.”
The U.S. Trade Representative (USTR) has now confirmed that it took the “US’ trade deficit in goods with each country as a proxy for alleged unfair practices, then divided it by the amount of goods imported into the US from that country. The resulting tariff equals half the ratio between the two, resulting in countries such as Vietnam and Cambodia — which send large amounts of manufactured goods to the U.S. but import only small quantities from the U.S. — attracting punitive tariffs of 46 and 49 per cent respectively.”
But, as mentioned, even countries with no trade deficits, including the United Kingdom, with which the US actually had an annual surplus in goods trade last year, are still being targeted with the baseline 10% tariff. This comes as the UK government had been seeking to negotiate a free trade deal with the US.
The USTR calculations seemingly also ignore previous assertions that the individualized national tariffs rates would be based on in-depth assessments of bilateral trade relationships, including taxes, regulation and other non-tariff barriers to trade.
By Executive Order, President Trump is also seeking to close the de minimis exemption for “low-value goods” from China and Hong Kong, effective May 2nd, 2025. This would mean no more duty-free de minimis shipping for goods valued at or under $800. Imported goods will face the full tariff rate applied to the country of origin, while goods sent through the international postal network will now face a rate of either 30% or $25 per item, rising to $50 in June.
The White House has been stressing since the announcement that the tariffs are not intended as a negotiation tactic; rather that they are being used as a seemingly permanent mechanism to respond to a “national emergency”, by creating a “golden age” for the United States through the bolstering of the domestic manufacturing and industrial bases. If companies do not want to be subject to tariffs, then they are to move their manufacturing operations to the United States.
Internationally, countries are now evaluating their retaliatory options. China has “pledged to take firm countermeasures to safeguard its own rights and interests”, and on Friday, announced, amongst other actions, the imposition of matching 34% “across-the board” tariffs on American goods; while Ursula von der Leyen, the European Commission president, said the bloc is “preparing further countermeasures in addition to the retaliatory tariffs it had already prepared for the earlier tax on foreign steel and aluminum.”
Impact of Wednesday’s Announcement on Canada
However, Canada and Mexico did not figure in the country-by-country chart of global tariffs. The President nonetheless referenced Canada during his Rose Garden remarks, not by threatening our annexation as the 51st state, but rather by bemoaning American subsidization of Canada, as well as reprising his regular (and inaccurate) grievance over Canadian “250-300 percent tariffs on dairy products.” As a reminder, while Canada does in theory charge these tariff rates on American dairy imports, this had been agreed to by President Trump during CUSMA negotiations, and they only take effect once duty-free quota levels are reached for American dairy products. To date, American dairy farmers have yet to meet the requisite export levels to trigger these tariffs.
Nonetheless, the Trump administration has made clear that both Mexico and Canada will continue to face the 25% tariff on non-CUSMA compliant imported goods and 10% on non-CUSMA compliant energy, energy resources, and potash, on the grounds that both countries have not done enough to curb the flow of fentanyl into the United States.
Then there are the sectorial tariffs on steel, aluminum, and on non-American autos, which are now in effect as of 12:01 am on April 3rd. Tariffs on certain automobile parts are also intended to be applied before May 3rd. The Government of Canada suggests, with respect to the latter, that "exclusions linked to U.S. content may be available, specifically, the application of the 25% tariff only to the value of the non-US content in automobiles and auto parts that qualify for preferential tariff treatment under CUSMA.”
US Senate Symbolically Defends Canada and New Fentanyl Numbers Come to Light
In a 51-48 vote later that evening on Wednesday, with 4 Republicans joining the Democrats (Maine, Alaska, and both Kentucky Senators), the US Senate symbolically rebuked President Trump, by approving a resolution that would terminate the national emergency the President had declared with respect to the flow of fentanyl crossing into the US from Canada.
“The act that the President has used to declare an emergency to impose tariffs is an act that was designed to be used against adversaries,” said Democratic US Sen. Tim Kaine, on the floor of the Senate chamber. “I stand here strongly in the belief that Canada is not an adversary, they’re an ally.”
The resolution will now be sent to the US congress, which holds a strengthened Republican majority after two more Republican congressional seat pick ups this week and is most unlikely to be adopted by that chamber. Even if it does, the President has the power to veto, which can only be overturned by a two-thirds majority vote in each chamber. And the President has already said that he would never approve the resolution: “The Senate bill is just a ploy of the Dems to show and expose the weakness of certain Republicans, namely these four, in that it is not going anywhere because the House will never approve it and I, as your President, will never sign it,” he said, in a post on social media.
President Trump also said that Republicans “MUST vote to keep the National Emergency in place, so we can finish the job, and end the scourge.”
In a related note, in response to American freedom of information requests, the Globe and Mail has discovered that, in fact, “barely more than one-tenth of 1 percent of fentanyl seizures (0.74 pounds in all) at the northern border have been positively attributed to Canada by the United States border agency.”
Previous Globe and Mail analysis has suggested that at least one-third of the 43 pounds of fentanyl that is consistently cited as having come from Canada last year, had not in fact been intercepted at the border or had clear ties to Canada, but came from the larger “northern border regime,” which comprises 63% of the American total land area.
The Canadian Federal Response
Prime Minister Mark Carney, for the second consecutive week, suspended his national campaign, in order to convene the Canadian response to President Trump’s actions.
On Wednesday, he chaired a meeting of his Canada-US Council followed by a meeting of the Canada-US Relations Cabinet Committee that evening. On the way into the Cabinet room, the Prime Minister said that Trump’s measures will “fundamentally change the international trading system.”
Then on Thursday, the Prime Minister met virtually with the 13 First Ministers, and also, seemingly in a nod to abiding by the caretaker convention advised the other federal party leaders of Canada’s planned response.
Subsequently, the Prime Minister said to reporters that the tariffs against Canadian goods are "unjustified, unwarranted and, in our judgment, misguided," and Canada needs to reciprocate with "carefully calibrated and targeted countermeasures." “We must respond with both purpose and force," he said. "We are a free, sovereign and ambitious country. We are masters in our own home. We will fight to bring these tariffs to an end."
The Prime Minister, however, does not believe that, despite the pain the tariffs will cause on Americans, this will be by any means a temporary measure: it is a “tragedy, but it is also the new reality.” Mr. Carney said Canada must also brace for impacts in the days to come for further tariffs/actions that will impact our pharmaceuticals, semiconductor chips, copper, lumber and agricultural sectors.
The Prime Minister also reiterated remarks from last week that the Canada-US economic and trade relationship of “steadily deepening integration with the United States … is over.” He did, however, suggest that Canada’s military and security relationship with the United States remains critically important. Any future Canada-US trade negotiations must also re-define that relationship, while seeking to diversify defence procurement.
Mr. Carney also suggested that a Canadian recession may now be inevitable. “When the United States has a recession, it’s very difficult for Canada to avoid something similar,” he said. He nonetheless pointed to the 2008 financial crisis as an exception to that rule.
In terms of economic response, Mr. Carney announced that Canada will strike back against American auto tariffs, by applying matching retaliatory duties on $35 billion worth of American vehicles imported into Canada that are not compliant with CUSMA. He said that these counter-tariffs will apply to the non-Canadian and non-Mexican content of CUSMA-compliant fully assembled vehicles imported into Canada from the US. He went on to say that “our tariffs will not affect auto parts because we know the benefits of our integrated production system,” unlike the American tariffs. Canadian tariffs will also not be applied to vehicle content imported from Mexico.
Carney vowed that all revenue raised via Canadian counter-tariffs, estimated at “around $8 billion before remission,” is intended to go directly to Canadian auto workers and the companies affected by these tariffs. This builds on a campaign pledge to create a $2 billion fund to build a new “made-in-Canada auto sector” if the Liberals win the April 28 election.
The federal government is also developing a framework to help automakers avoid the Canadian countermeasures “as long as they maintain their production and investment in Canada.”
In this respect, Industry Minister Anita Anand, said in an interview that she has spoken with auto manufacturers in Canada, and they intend to stay in the country, and they want to work with the federal government to ensure that that continues to be possible. “We have agreements in place with the auto manufacturers. That’s our Strategic Investment Fund, and we will continue to ensure that we come forward to maintain a healthy and vibrant auto manufacturing sector. The Minister also said the federal government is creating a “remission framework” in order to provide relief for auto manufacturers as long as they continue their business in Canada.
When asked for more details about the framework, Anand said they are still being ironed out as the government will consider feedback from the companies and other key stakeholders. She said, “loans are not primarily on the table right now.”
Meanwhile, Prime Minister Carney said the conversation he had with the Premiers was “fantastic” and that all are on board with the plan as laid out.
The Prime Minister Carney spoke with Mexican President Claudia Sheinbaum as well as Chancellor of Germany, Olaf Scholz this week.
Provincial Reactions
Ontario Premier Doug Ford said that Canada got “the best of a bad deal” on Wednesday, but the deal is still “totally unacceptable.” The Premier believes that while Canadian-made vehicles will likely be hit with a lower level of tariffs, based on the percentage of American parts in them, the threat to the Ontario economy is very real: "These auto companies aren't making money hand over fist — they're basically trying to get by day-by-day and keep their people employed," Ford said. The Premier said he supports the retaliatory tariffs Prime Minister Carney puts forward in response.
Quebec Premier François Legault has endorsed the Canadian federal response, saying that while Canada was “relatively spared” on Wednesday, the country must remain “on guard.” The Premier wants Canada to renegotiate CUSMA as soon as the federal election is over.
BC Premier David Eby said that Prime Minister Carney has apparently changed the tone coming out of the White House, and that he hopes the apparent shift will bring “some stability and ultimately grounds to sit down like adults and come to an agreement about how our two countries can come together. The Premier will be meeting Prime Minister Carney next week, and top of mind is the continued imposition of duties on softwood lumber exports to the US. In other news, the provincial credit ratings were downgraded by S&P Global ratings (from AA to A+) and Moody’s Ratings (from AA1 to AA2) on April 2nd, citing the growing deficit.
Specifically on the topic of the federal counter-tariffs, Alberta Premier Danielle Smith has confirmed that she and her provincial counterparts are on board, as she believes the “measures are proportionate and unlikely to result in further US retaliation.”
Atlantic Premiers have largely echoed the Québec Premier, with Nova Scotia Premier Tim Houston warning that thousands of Nova Scotians will still be affected by the trade war. The Premier appreciates what he has viewed as a tone shift in the relationship with the White House under the new Prime Minister.
Finally, Manitoba Premier Wab Kinew says his province is facing a trade war “on two fronts”, as Manitoba is also suffering from Chinese tariffs on pork and canola, which had been levied in response to Canadian tariffs on Chinese EV imports. He recently met with PM Carney in Winnipeg.
