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Trade Escalations – Too Much Too Soon?

A recent report from Scotiabank warned that the economic consequences of a potential ‘all out’ trade war between Canada and the US could result in the Canadian economy shrinking by 1.8% by 2020.

Following recent tariffs on Canadian steel and aluminum imports, Washington’s sightlines now appear set on the Canadian automotive industry, an industry which employs roughly 130,000 Canadians and sees 85% of its products destined for the US market.

These escalations are beginning to resemble a high-stakes hand of poker (bet, raise, re-raise, etc.) where each player was likely better off checking it down in the first place. So how can Canadian policymakers salvage the situation? Or possibly come out ahead?

While Canada has promised a ‘dollar-for-dollar’ response to any Trump-levied tariff, although tempting to go mano-a-mano, perhaps we may be better off eventually assuming a lower profile and allowing Trump to distract himself elsewhere within his foreign policy.

After all, President Trump is simply catering to his base as renegotiating trade relations was one of his central campaign promises. He’s going to continue to push this agenda as long and as hard as he can – possibly for his entire term.

So far tough talk, although applauded by the Canadian public, has yielded few desirable results. Instead, we are further down the rabbit hole with no end in sight. We can pursue this strategy at first, but if this doesn’t solve anything soon it’s time to switch it up.

To do so, Canada will have to make some concessions in hopes of closing out this chapter. As bilateral trade in goods and services between our two countries was a whopping $674Bn USD in 2017 (and roughly 2/3 of Canada’s trade is with the US), the US will always hold the upper hand if we are pitting economy vs. economy.

Canada could instead focus on diversifying our trade relations with other countries, and one way to do this is to assume a leadership role in the CPTPP.

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