Trump’s tariffs are delayed but they have already done long-term damage to US–Canada relations 

Canada will work hard to resolve the dispute permanently – but the continuing tariffs threat will create pressure to reduce reliance on US trade.

Expert comment Updated 5 February 2025 4 minute READ

Canadians were shocked by the announcement at the weekend that the United States would impose a 25 per cent tariff on most imports from Canada and Mexico, just as they were astonished by Donald Trump’s earlier pledge to use ‘economic force’ to absorb Canada into the US.

Trump’s last-minute decision to delay the implementation of these tariffs for 30 days brought a measure of relief. To win this reprieve, Canada expanded its existing plans to strengthen security at its own border and to combat the trade in fentanyl and money laundering. 

However, the danger of a tariff war still looms. President Trump has repeatedly praised tariffs as ‘beautiful’ multipurpose instruments that can stimulate domestic manufacturing and generate vast revenues for the US Treasury. In January, he also used the threat of tariffs to persuade Colombia to accept military flights carrying deportees.

Canada has demonstrated its willingness to negotiate and will seek to extend the delay beyond 30 days or resolve the disagreement entirely. But its response at the weekend indicated that it is prepared to retaliate against tariffs too, which may have given Trump pause. His threats appear to have activated a latent but powerful nationalism in Canada.

Canadian resolve

President Trump has often repeated his call for Canada to become the ‘51st state’. Such statements, coupled with threat of ‘economic force’, have been received by most Canadians not as an invitation but as an assault on Canada’s economy and sovereignty. 

Canadian Prime Minister Justin Trudeau, set to resign when his Liberal Party selects a new leader, captured this public mood in a televised address at the weekend, responding to Trump’s tariff threat. ‘We didn’t ask for this,’ he said, ‘but we will not back down’. He then announced that, if US tariffs were introduced, Canada would impose 25 per cent tariffs on C$155 billion worth of US imports – a larger amount that some initially expected. 

Some economists forecast that, if imposed, US tariffs would drive the Canadian economy into recession within five or six months.

The two leading candidates to replace him as Liberal leader – former Bank of England governor Mark Carney and former deputy prime minister Chrystia Freeland – expressed support for retaliatory tariffs. So did Pierre Poilievre, the leader of the opposition Conservative Party, which is ahead in the polls in advance of an election later this year. The leaders of Canada’s provinces, hitherto divided, also voiced their approval. Ordinary Canadians shared lists of US products to boycott.

Now that the immediate threat of US tariffs has lifted, Canadians’ disbelief and fury has been tempered by relief and uncertainty about what might come next. Some economists forecast that, if imposed, US tariffs would drive the Canadian economy into recession within five or six months. Significant job losses would also be expected, including up to 100,000 in Quebec alone, according to that province’s leader.

US vulnerabilities

The US economy is both ten times larger and less dependent on trade than Canada’s, and better positioned to withstand a prolonged tariff war. But Canada is not defenceless. Officials in Ottawa are conscious of Trump’s political vulnerabilities, including his commitment to keeping consumer costs low for Americans, and his devotion to US states, regions, and sectors that have provided him with political support. 

Ottawa has ample opportunities to target its own retaliatory tariffs with precision.

Canadian policymakers designed counter-tariffs with these vulnerabilities in mind. Because Canada is the principal export destination for 34 US states, Ottawa has ample opportunities to target its own retaliatory tariffs with precision. (Even without these countermeasures, Trump’s now-suspended 25 per cent import tariff would cost the typical US household $1,200 per month, according to Yale University’s Budget Lab). 

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Canada is also America’s largest foreign supplier of crude oil, natural gas, electricity, and several commodities that are essential to America’s industrial and defence sectors. 

For example, Teck Resources, in the Canadian province of British Columbia, is North America’s largest producer of germanium – a metal used in the production of semi-conductors, solar panels and high-end optics. Prime Minister Trudeau hinted over the weekend that Canada could, if pressed, reassess US access to such commodities, although he emphasized that he did not wish to escalate the dispute.

Lasting damage

Canada’s challenge now is to convince President Trump to either end the threat of US tariffs or to push it further into the future. However, there is a sober realization in Ottawa that this episode may be the prelude to four years of threats, coercion, and chaos.

The full details of Canada’s latest commitment to combat fentanyl production and illegal migration remain unclear, but they appear to consist largely of initiatives that were announced in December. These include an investment of C$1.3 billion to fund additional border personnel, monitoring equipment, and measures to target organized crime.

Canadians have long assumed that the US would never deliberately seek to harm Canada. That assumption was shattered over the weekend.

This is a small price to pay for a continuation of peaceful trade, not least because Canada has a strong interest in securing its border and tackling the fentanyl trade too. However, US tariffs are only delayed; and officials in Ottawa are bracing for Trump to make new demands and threats.

Even if the current threat of trade war is lifted entirely, it will have lasting effects on the bilateral relationship. Canada and the US have always had trade quarrels, traditionally over relatively mundane issues such as the method for pricing wood. But Canadians have long assumed that the US would never deliberately seek to harm Canada. That assumption was shattered over the weekend.

President Trump has been restored to power for a second term with the votes of millions of Americans, with his supporters firmly in the ascendancy in Washington. There is a real possibility that this dispute could represent a long-term trend in US politics that must be accounted for – rather than an aberrant moment that can be waited out.

Canadian political and corporate leaders will consequently face intensified pressure to reduce Canada’s vulnerability to future threats from Washington. That includes redoubling efforts to expand Canadian trade in Europe, Asia, and elsewhere, and rethinking Canada’s industrial structure, which is now largely integrated with that of the US. The top priority, however, will be to repair relations with Washington.

Doing so will require a rebuilding of trust between the two countries — not an easy task after this week.  Political and corporate leaders in the US who understand the value of this relationship must also speak up, rather than remaining silent because they fear antagonizing President Trump.

Canada, for its part, will continue to extend its hand of friendship. But it is in no mood to bend its knee.