U.S. President Donald Trump on Thursday fired the latest salvo in what many fear will become a trade war when he announced sweeping reciprocal tariffs on goods entering the country.
Some experts and industry groups are worried it could lead to a global trade conflict and Canada could get caught in the crosshairs.
“I have decided for purposes of fairness that I will charge a reciprocal tariff, meaning whatever countries charge the United States of America we will charge them, no more no less,” Trump said as he signed the executive order Thursday.
Trump said the tariff would differ depending on the tariffs individual countries imposed on U.S. goods.
“In almost all cases, they are charging us vastly more than what we charge them. But those days are over,” he said.
The tariffs could begin to be imposed within weeks as Trump’s trade and economic team study bilateral tariff and trade relationships, a White House official told reporters on a conference call, according to Reuters.
After weeks of focus on retaliatory tariffs, many may wonder what the term “reciprocal” means.
Broadly speaking, a reciprocal tariff would appear to be aimed at matching either the value or the spirit of any tariffs in place by other countries on American products.
This is different from what has become known in the Canadian context as a retaliatory tariff, which has been used when discussing a response to hit back at new tariffs imposed by the U.S. on Canada.
For example, Canada does not have across-the-board tariffs on American goods. If Trump follows through on his threat to impose those sweeping 25 per cent tariffs next month, those sweeping U.S. tariffs would not be reciprocal, since Canada does not have any matching ones already in place.
Moshe Lander, economist at Concordia University, said the effect would be the same regardless of what kind of tariff it is.
“A reciprocal tariff and a retaliatory tariff are essentially the same thing. A reciprocal tariff is: a tariff already exists; I’m now going to introduce one that matches what you had on me. A retaliatory tariff is: you have created a new tariff on me and therefore I’m going to create new tariff on you back. But the economic effects are exactly the same thing.”
Canada has a list ready of retaliatory tariffs that the government will impose in direct response if that happens, which Trudeau has said are crafted to inflict pain on American consumers while minimizing pain on Canadians.
Thursday’s announcement is separate from the 25 per cent tariffs on steel and aluminum and the additional 25 per cent tariffs that Trump has vowed to impose on Canada next month.
The order described “non-reciprocal trade relationships” in very broad terms, including any tariffs on U.S. products, taxes and non-tariff barriers on U.S. businesses, workers, and consumers and “policies and practices that cause exchange rates to deviate from their market value.”
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A non-reciprocal trade relationship, the executive order said, would be one which “in the judgment of the United States Trade Representative… imposes any unfair limitation on market access.”
It added that a “nontariff barrier” would be described as “any government-imposed measure or policy or nonmonetary barrier that restricts, prevents, or impedes international trade in goods.”
Directly, this could extend to Canada’s procurement policies that favour local businesses.
“Fairness is extremely subjective,” said Lander. “This president is taking the subjective view that trade is a zero-sum game and if somebody is benefiting, then somebody must be losing.”
Flavio Volpe, president of the Automotive Parts Manufacturers Association, said global trade disruption would hurt Canada too.
“A general trade war with the rest of the world – including Europe, Japan and Korea, where three big import sources for vehicles into the U.S. originate – is going to create real inflationary pressures in the U.S. market and do things to disposable income. That is really going to hurt the prospect of Canadian exports to that market and Canadian imports from that market,” he said.
The Canadian Chamber of Commerce, in a statement, said Trump’s move would be a “step towards dismantling a rules-based international trade order that has made much of the western world, especially the United States, more prosperous and productive.”
“Disrupting longstanding, mutually-beneficial trade patterns with self-defeating tariffs makes no sense for American or Canadian economic success. Tariffs are taxes,” said Candace Laing, the president and CEO of the chamber, in a statement Thursday.
“They raise the cost of goods and services. They are not — as the President claims — a source of endless revenue. The pursuit of an American industrial model from the past will result in rising costs of goods, long-term economic decline, and job losses.”
Laing called on the Canadian government to improve internal trade between Canadian provinces and ensure that regulations in Canada attract investment.
Volpe told Global News that Trump’s many tariff announcements, which the White House has said would stack on top of each other, are creating an atmosphere of uncertainty.
Volpe said, “They’re all coming very quick and none of the math makes sense and no one’s ever compounded tariffs before.”
Ryan Mallough, vice-president of legislative affairs with the Canadian Federation of Independent Business, said many Canadian businesses were already being hit by the uncertainty.
“The real word to use around the tariff threat is uncertainty,” he said. “Things do seem to be changing so quickly. (They are) having to pay attention to every tweet or post the president puts out and try to read what that’s going to look like.”
The reciprocal tariffs seem broadly aimed at developing nations or emerging markets that place tariffs on U.S. goods. Trump wants to tariff-match with such countries.
For example, Brazil charges an 18 per cent tariff on U.S. ethanol, while the U.S. allows Brazilian ethanol in largely duty free, according to the American Biofuels Association. Under Trump’s plans, the U.S. rate could be raised to match Brazil’s or the Brazilian rate could be lowered to the U.S. level.
The European Union collects a 10 per cent tariff on vehicle imports, four times the U.S. passenger car tariff rate of 2.5 per cent, although the U.S. tariff on highly profitable pickup trucks is 25 per cent.
A White House official said that countries with large U.S. trade surpluses or especially “egregious” cases could be targeted first. China, Mexico, Vietnam, Ireland and Germany had the five largest goods trade surpluses with the U.S., according to the U.S. Census Bureau.
India’s tariff rates are the highest among the top 15 U.S. trading partners, according to the World Trade Organization, with a simple average 17-per cent rate for all products compared to 3.3 per cent for the U.S.
Lander said, “The fact is he’s indiscriminate in how he’s targeting tariffs. The tariffs on smaller, poorer, less-developed and industrializing countries were negotiated bilaterally and/or multilaterally.”
This means that previous U.S. administrations and the countries in question mutually agreed to differentiated tariff rates, since the U.S. economy was much stronger than some of these countries.
“Now he’s just ripping up that agreement like he’s ripped up all kinds of other agreements that the U.S. signed up to,” Lander said.
A Bank of Canada report on Wednesday noted the dangers of a global trade war.
Since 1947, the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO) has worked to reduce trade barriers and negotiate fair trade tariffs between countries and trading blocs.
Lander said Trump’s moves jeopardizes the global trading order.
“This president looks to try and be taking us back to a period that would have existed before the Second World War,” he said.
Lander added, “One of the things that made the Great Depression last longer than it needed to was that when economic hard times hit, each of the countries affected by the stock market crash and the loss of consumer confidence, rather than pursue more integration, they turned inward and pulled up the drawbridge.”
–with files from Reuters
