“Catastrophic”; How damaging new Trump tariffs are impacting Canadian businesses.

Trade tensions between Canada and the U.S. further escalated this week after President Donald Trump announced new tariff threats, including a proposed 50% duty on some Canadian goods. The White House says this is in response to what it calls Canada's unfair trade practices. And on top of that, the Trump administration has also announced a broader 10% tariff on imports from dozens of countries, including Canada, after accusing those countries of failing to prevent goods made with forced labor from entering their supply chains. And with no end to the trade dispute in sight, what does it all mean for Canadians? Joining us now to help us unpack these latest threats is William Pellerin. He's an international trade lawyer at Macmillan LLP. Thank you for your time today, William. Always a pleasure. Firstly, let's just start off with your overall reaction to these latest threats. What do you make of them? Are they legal? And what makes them different from previous threats? So maybe I'll start with that 50% tariff, because that's actually the one that's quite devastating for Canadian businesses, manufacturers and exporters. We're already speaking with a large number of clients who, because of this tariff threat of 50% that would come into force next month, are already losing massive orders to their US customers. So that 50% is what the United States calls an anti-discrimination piece of legislation. So basically, the US president is saying because Canada retaliated to the tariffs we put in place in the first place, we're going to hit them again with this additional 50%. And so there's a large list of products, and there's a lot of weird products on that list, like coffee sticks and flower bulbs and all sorts of things. But there's actually some products there like furniture and electronics that really do hit Canadian manufacturers. So a 50% tariff really makes those Canadian businesses uncompetitive in the United States. And we're already seeing the impact of that because US customers don't want to take the chance of having to pay 50%. So we've already seen some layoffs by Canadian manufacturers just because of that threat. The other tariff, just to conclude really quickly, is this 10% anti-forced labour tariff that you were mentioning. And you're right, that's also something that hits Canadians. But that one there is a little bit less important and a little less dramatic, because it's really just the replacement tariff on something, another statute that was previously used that's expiring. And so they're replacing one 10% tariff with another. Thank you for clarifying that part. Let's just talk about what the White House is claiming in regards to the 50% tariff threats. The White House is claiming that Canada is discriminating against American cars, dairy and alcohol. So under US trade law, is Canada actually doing something wrong? No. So the point is, absolutely not. And this is just the United States being simply very aggressive and driving Canada towards negotiations and making additional concessions on things that the United States doesn't love, but that are entirely consistent with the trade agreement that we signed. So the short of it is that the United States is saying that Canada is acting unfairly or in a discriminatory manner, because we retaliated to the United States' own illegal tariffs on us. So this is kind of a vicious circle and circling the drain here, where we hit back at the United States because of their illegal tariffs on us. And now they're hitting us back really for that retaliation with this threat of 50%. What options does Canada really have at this point in regards to responding to all this? Do you see us further retaliating or perhaps taking legal action? How can we expect that to play out? That's a really good question. So we already heard this week with the premiers getting together with the Prime Minister and trying to discuss. And it's a very difficult question, frankly, because on the one hand, when someone punches and Premier Ford is the one to use kind of the bully expression that you really want to punch back. And some premiers are advocating for a very forceful approach here, like we can withhold critical minerals or electricity or energy. Whereas I think the Prime Minister wants to take this a little bit slower and other premiers, such as Daniel Smith in Alberta, for example, saying no, we have to act rationally here and calmly and not retaliate. Because again, the US hit us because we retaliated. So if we retaliate again, then who's to say what the next step is, and it's just going to inflame tension. So perhaps in the short term, at least the play is to sit down with the US administration and try to hash out a deal. And clearly, they've used their cards to force us back to the negotiation table. Okay, and if these tariffs do take effect on August 19, that's the scheduled date for now, what would Canadians notice first? Which Canadian industries are likely to be hit the hardest? I think it's probably furniture and wood products that are captured on this list that were not subject to US tariffs until now. So there are a large number of furniture manufacturers in this country, a lot of them in Quebec, but throughout the country also, including in Manitoba and Saskatchewan. And what would certainly happen here is that those companies' sales will go to zero, right? They will not be competitive in the US market with a 50% tariff. And a lot of these furniture manufacturers are often 200-300 jobs in a small rural town somewhere, and the major employer of that town where everyone depends on those jobs. And if that factory closes, or they go to cycling layoffs, which we're already seeing being planned with some of our clients in that space, this is going to shut down Canadian towns altogether. So we're hearing the word catastrophic from some of our clients. Okay. And let's go back to the 10% tariff that's impacting dozens of countries over what the White House claims is forced labor practices. What's your assessment of that reasoning? It seems like these threats keep coming. Yeah, you're absolutely right. When it's not one thing, it's the next. It's playing whack-a-mole on all the different tariff tools that the United States has. And one goes away because the Supreme Court struck one down a few months ago, said, you know, President Trump, you can't use this tariff tool against the world and Canada. And so the US pivoted to another one. That one could only be in place for 150 days. So it was expiring on Friday. And lo and behold, the US has now imposed a new tariff that replaces that tariff. The allegation here this time is that Canada does not do enough, as other countries do not do enough to prevent goods that are made from forced labor around the world. And on this point, what's actually interesting is that it is true that the United States is actually far more aggressive at the border to prevent goods that are alleged to be made with forced labor than other countries. So Canada does have a ban at the border on goods made of forced labor. But the Canada Border Services Agency has a very, very difficult time enforcing that. And in fact, there's almost no enforcement of that ban. And when you think about it, without the right tools, it's difficult for a border agent, right? You see a T-shirt come across the border, a truckload of T-shirts, or a shipload of solar panels, or hammers, or something of the sort. You don't know, looking at the good, whether that's made with forced labor or not. And so a hammer looks like a hammer, right? And so it's almost impossible to stop those goods at the border. The United States has different tools where they just say, if the products come from Western China, for example, we find that they are made of forced labor unless the importer can prove the opposite. So they have this very aggressive tool that Canada doesn't have. And that's why, effectively, they're hitting us with this forced labor tool, or at least that's the justification. Okay. And finally, very briefly, tell us, what should Canadians be watching for over the next few weeks as they watch all of this unfold? Yeah. So I think the first question is, how quickly does Canada sit back down at the negotiation table to prevent this next round of tariffs from hitting, and to also try to get those tariffs that we already have on our steel, our aluminum, our autos, and other wood products, like kitchen cabinets, removed? So how quickly will Canada sit back down and be able to negotiate with the United States? The next one is, how quickly can Canada move on passing a new piece of legislation to kind of close the gap with the United States on forced labor? So the government of Canada has already introduced a new forced labor bill in parliament called C35. And if that bill becomes law, then we will have the same type of laws that the United States has on forced labor. And the idea there is to be able to go to the United States and say, no, no, we're just as tough as you are on forced labor, so take off this additional 10% that you've imposed. So I think those are the two main things to look out for and to see whether we can de-escalate and get these tariffs down for Canadians. Okay, William, thanks so much for your time and insight today. My pleasure. That is William Pellerin, an international trade lawyer with Macmillan LLP.