Can Canada win a trade war with the U.S.?

Yahoo Finance Canada
U.S. President Donald Trump (Getty Images)
U.S. President Donald Trump (Getty Images)

On Thursday, U.S. President Donald Trump announced that he would be imposing tariffs on steel and aluminum imports into his country.

Unsurprisingly, this did not sit well with Canada. Foreign Affairs Minister Chrystia Freeland quickly responded to the news, calling the plan “absolutely unacceptable.” She added: “Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers.”

Scroll to continue with content

By Friday morning, Trump had (also unsurprisingly) taken to Twitter to bolster his plan, tweeting the following:

One phrase of that tweet in particular, “trade wars are good,” got immediate, widespread attention. As the Wall Street Journal editorial board pointed out, Canada is the top international supplier of steel to the U.S., supplying the country with 16 per cent of its imports.

That begs the question: Can Canada win a trade war with the U.S.?

We reached out to several of the leading experts in the field of economics and international trade, asking them just that. Here’s what they said:

Edward Alden, Bernard L. Schwartz Senior Fellow, U.S. Council on Foreign Relations:

Canada unfortunately has few good options in this situation. It would clearly lose a trade war with the United States – more than 70 per cent of Canada’s exports go to the U.S., while the United States sends just over 15 per cent of its exports to Canada. And the legal remedies that Canada favors are few in this case. President Trump has invoked “national security” to justify the tariffs, and the World Trade Organization and NAFTA both have large exceptions that permit countries to block imports in the name of national security. U.S. courts are similarly deferential to the president on security issues. Canada’s best option is to continue stressing to its many friends in the United States – governors, members of Congress, farmers, big manufacturers – that the United States would also be a big loser from any trade war with its closest ally and largest trading partner.

Trevor Tombe, Associate Professor, University of Calgary Department of Economics:

No one wins a trade war. While there might be an incentive to unilaterally respond and raise tariffs on products from the United States, Canadians are hurt by such an act. It’s in our long-run interests to dispute the U.S. moves through the WTO, or trying hard to receive an exemption from the U.S. tariffs. Note that, also on Twitter, the president noted the importance of reciprocity. We don’t tax their steel/aluminum, so perhaps they’ll exempt us. This is unclear. But to raise taxes on imports from the U.S. will cost Canadian households and businesses. It’s a road we need not go down.

Craig Alexander, Senior Vice-President and Chief Economist, The Conference Board of Canada:

The U.S. administration views trade as a zero sum game. If one side wins this other side loses. This isn’t how international trade works. The economic gains are mutual when economies open their borders and treat each other equally. Conversely, the economic losses are felt on both sides when protectionist measures are applied.

Ian Lee, Associate Professor, Sprott School of Business, Carleton University:

Canada will be a net loser on balance in any trade war with the USA. Let us start with the most obvious – that the U.S. economy is 10 times larger at almost $20 trillion GDP [as opposed to] the $2 trillion Canadian GDP. This means that the U.S. economy trades a lot more with itself, [and is therefore] much more self-reliant as it is so much larger. Restated, a counter-response by Canada in imposing retaliatory tariffs would largely fail as we often do not have a domestic supply that would benefit from the protection. Very very large economies [such as] USA and China have many more degrees of freedom due to their sheer size, relative to most other economies. The solution is a revised NAFTA that covers ALL industries and sectors and products in the private sector (I exclude public sector stuff such as CBC, Canadian healthcare) against arbitrary protectionism. But this means we must give UP our Canadian protectionism for dairy, telecom, banking, airlines and the other industries we protect – in order to demand a truly comprehensive NAFTA that does not allow tariff protectionism.

Download the Yahoo Finance app, available for Apple and Android.

What to Read Next