Trump’s New Tariffs Are Testing Canada’s Patience

This is a story about déjà vu all over again. This week, the White House announced yet another round of tariffs on Canadian goods, this time charging 50% on imports of a range of items including milk, hockey equipment, beer, and plywood, but specifically excluding energy and potash, a critical fertilizer used by American farmers. Our special contributor, Chrystia Freeland, served as Canada's finance minister and deputy prime minister. So Chrystia, we have an announcement now that the Trump administration wants to impose a new round of tariffs, 50% of 50% on certain goods from Canada next month. What are these tariffs and why does the Trump administration say they need to be put into place? So a proclamation has been signed, or three proclamations, and they are due to come into force on August 19th, 30 days after the proclamation. The official rationale is in reaction to Canadian treatment of U.S. alcohol, U.S. dairy, and U.S. cars and car parts, but we have to be careful about believing the official rationale because just before the proclamation came out, the complaint was that Canada needed to be punished for the Canadian wildfires, which is a hard thing to figure out how Canada should stop them. And I think we really have to recognize that this is happening against a backdrop of what is turning out to be a very contentious renegotiation of the USMCA, formerly known as NAFTA, trade Well, you were right in the center of negotiating the USMCA the last time around when you were part of the government. What has been announced is on specific categories of goods. How big a deal is that in terms of the amount of trade between the United States and Canada? People have calculated that it's about $20 billion worth of goods. That's not, you know, a killing blow for the Canadian economy, but it is significant in and of itself. And I think the other thing, what is really important about this is it shows that this is going to be a truly contentious negotiation. It shows that Donald Trump wants to punish Canada and Canada now has to decide how to respond. Do we think it's punish Canada or use some leverage on Canada? As I understand it by reports, the United States is farther along with Mexico in negotiating on the USMCA than it is with Canada. I'm not sure Canada's engaged that much. Is it possible this is just a way to get Canada to the table? I actually, David, agree with you about most things, but I don't think that's a fair interpretation at all. Canada has been ready, willing and able to negotiate any place, any time. The US did not have to impose tariffs to get Canada to negotiate. Canada wants to talk. Canada wants a deal. In fact, Canada has made a number of concessions sort of bargaining against itself in advance, I guess, to show willingness to negotiate. Canada last year dropped the digital services tax. Canada has dropped most of its retaliation against the illegal and unjustified US 232 tariffs. One area where I think there's been some very specific purposeful discrimination is alcohol. We've heard a lot about Canadians just not wanting to buy US alcohol. Does Donald Trump have a point when it comes to alcohol? Absolutely not. What has happened on alcohol is at a provincial level in response to the 232 tariffs on Canadian steel, aluminum, cars and car parts. And those tariffs, let's remember, are imposed allegedly on national security grounds. So we have to think that Canada is a national security threat to the United States. They are being imposed against goods that we should have free trade in according to the USMCA, our trade deal. So those were imposed last year and regular Canadians and the premiers of a lot of Canadian provinces were very angry. And so the premiers of some of Canada's largest provinces took the decision that provincially owned liquor stores would not buy US alcohol. That is a wildly popular decision. And the premiers of Quebec, Ontario, British Columbia would face a huge public backlash if they backed down. And in fact, they've been very clear and they've said, absolutely not. We're sticking with this boycott. All of which leads us to what do we think the Canadian response is likely to be to this latest round of tariffs? Canada is in a challenging position right now, David, because on the one hand, public sentiment is very, very angry. Canadians feel that they are a good, reliable neighbor, ally and trading partner for the United States. It wasn't so long ago that we went through the drama of renegotiating our trade deal and we got a deal with Donald Trump. And notwithstanding that, we keep on getting hit by wave after wave of punishment. First, the 232 tariffs, now this round of tariffs. And even when Canada has sort of tried appeasement, tried to get along, dropped the DST, it doesn't make any difference. In fact, the US comes back for even more. So public opinion is very, very angry. In fact, something that I never thought I would see in my lifetime is that we are now seeing that more Canadians see the United States as a threat than China. Canadians, for the first time in this polling, see China as a more reliable partner than the United States. Communist authoritarian China, a country that just a few years ago illegally imprisoned two innocent Canadians, ironically, to punish Canada for honoring our extradition treaty with the United States. Yet this country Canadians feel is more reliable and trustworthy than the United States. You wrote a piece in the Financial Times about this problem of accommodation versus retaliation in dealing with the Trump administration on trade. If indeed the Canadian government decided we have to go the retaliation route, what sorts of levers does it have? I do think that the lesson that the Trump administration is teaching the world that the only countries that ultimately get to a good place with this administration are countries that stand strong. I think the best approach to this administration is do not escalate. Don't look for a fight. If you can find an area to agree on, that's great. But do not back down. And if you get hit, you do have to fight back and stand firm. That's very, very hard, but I think it's the only way to deal with this administration. If Canada wanted to do that, Canada has a lot of leverage. Canada is actually the largest export market for the United States. If you take goods and services, a market of well over $400 billion. Canada matters. And as these tariffs themselves demonstrate, some of the things that Canada sells are critically important to the United States. Things like energy, things like potash. The new tariffs on Canadian goods leave out an important category, fertilizers. The U.S. relies on Canada for potash and other agricultural products made more expensive by the closing of the Strait of Hormuz. Earlier this year, we spoke with businesses that were getting a firsthand look at the impact of the conflict. We have seen a major impact on global nitrogen and phosphate values. Josh Linville is vice president of fertilizer at financial services firm Stonex. Most farmers will tell you those prices have skyrocketed, and it's based on the fear of the lack of supply that's out there. We have seen, because of the shutdown of the Persian Gulf, the global S&D for nitrogen and phosphate as well, which isn't getting as much traction, not as much attention. We are seeing both of those get extremely tight. So everybody is talking about the oil and the gas and everything else that flows through there. Few people know, urea being the most commonly traded nitrogen product of the world, about a third of the world's product flows through that Strait of Hormuz. When you look at the top ten list of global urea exporters, three of them sit behind the Strait of Hormuz. That's Iran, that's Qatar, and that's Saudi Arabia. Those three nations represent three of the ten largest anhydrous exporting nations. And even on the phosphate side, not a lot of people understand this, Saudi Arabia is one of the world's top five exporting nations for phosphate exports around the world. And again, all of these products are stacked up and backed up and production is suffering until the Strait of Hormuz is reopened to save traffic. One solution might come from closer to home. Nitrogen-based fertilizers like urea are not the only options available. U.S. farmers also rely heavily on fertilizers like potash, much of which comes from western Canada. Pam Schwan is the president of the Saskatchewan Mining Association. Potash is one of the main fertilizers that's used to help make crops healthy and grow larger yields. So as the world grows to 10 billion people by 2050, on less arable land, we need to be able to grow crops more effectively and more efficiently that have higher crop yields. So potash is one of those three ingredients, along with phosphorus and nitrogen, that make crop yields much improved. What is the role of potash in Canada's economy? It's very significant, particularly in Saskatchewan. 100% of all the potash produced in Canada is produced in Saskatchewan. Of the potash that is generated in Saskatchewan, how much of it's consumed domestically in Canada? How much of it's exported and to whom? Yeah, very little is used in Canada and very little in Saskatchewan. So there's probably over 98% of what is produced in Canada, and again, all in Saskatchewan, is exported to global markets. So of that, about 50% goes into the United States to help farmers there grow corn, soybean and oats, and the rest is exported out to countries like China, India, Indonesia and Brazil are probably the main customers. Fortunately for U.S. farmers and for Canada's miners, Canadian potash has been kept free from tariffs, something former Deputy Prime Minister Freeland considers wise for all concerned. Two of the world's other leading potash producers after the full-scale Russian invasion of Ukraine. So I'm going to offer a little Canadian editorial here. A particularly bad time to have a trade war with Canada. There are lots of reasons a trade war with Canada is a bad idea. You need Canadian aluminum, for example, for U.S. manufacturing, and aluminum is basically electricity in solid form. But the fact that Canada is such a major producer of potash is another good reason that we're a great trading partner.