Trump 2.0: Canada likely to suffer tariffs

• We’ve expressed fairly high confidence that Mexico will continue to avoid President Donald Trump’s threatened tariffs. We do not share that same optimism as regards Canada’s fate in coming weeks and months – for the following reasons:
  • The politics don’t look good:
    • Trump’s distaste for Canada is arguably greater than his distaste for Mexico.
    • Part of that distaste is driven specifically by a repulsion vis-à-vis Canada’s Liberal party and its representatives.
    • This repulsion may only worsen if Trump-hawk Chrystia Freeland takes over the party’s helm on March 9.
    • We believe there is a serious possibility that Trump may seek to use tariffs as a means of influencing Canada’s likely spring snap election further in the Conservative party’s favor – potentially setting himself up for a post-election détente with his ‘new partners’.
  • The policies don’t look good:
    • Canada’s state of prolonged government transition arguably makes it more difficult for Canada than Mexico to fulfill Trump’s demands.
    • Some of Trump’s grievances have clear validity: Despite much lower numbers of illegal crossings from Canada into the US than in Mexico, numbers have in fact increased in recent years. In FY2022 US border agents arrested around 2,000 people attempting to cross illegally, and by FY2024 that number had risen to over 23,000.
    • Canada also pursues (or fails thereto) several policies perceived as adversarial by the US that have yet to come up, but likely will – namely:
      • A controversial digital services tax.
      • Deep (NATO-related) defense under-spending.

• Importantly, however, if and when Trump does decide to impose tariffs on Canada, these are (very) unlikely to be the 25% ‘across-the-board’ levies he has threatened – instead more likely targeting sectors such as “metals (including aluminum), food and beverage manufacturing, chemicals, machinery and aerospace” and/or “wood, pulp and paper, nonferrous metals and plastics“ (Source).