Harsha Kakar
The incoming President of the United States, Donald Trump, has made it known that one of his first actions will be to impose a 25% tariff on all imports from Canada and Mexico, alongside an additional 10% on imports from China. He cites illegal immigration and drug trafficking from Mexico and Canada, with a particular focus on fentanyl smuggling from China, as the rationale behind this decision. This isn’t the first instance of such measures; in 2018, Trump placed a 25% tariff on Canadian steel and a 10% tariff on aluminum, citing ‘national security concerns.’
Trump recently tweeted that ‘Thousands of people are pouring through Mexico and Canada, bringing crime and drugs at levels never seen before.’ Despite political pressure, both nations have done little to stem the influx of immigrants. Trump tends to resort to economic pressure when countries do not respond to his demands. Notably, Canada exports 77% of its goods to the US, while Mexico sends 80%. Higher tariffs could trigger a recession in both countries.
His decision is likely to have repercussions for US citizens as well, since tariffs increase import costs. Canadian Prime Minister Justin Trudeau engaged in a subsequent phone call with Trump to discuss trade and border security, but it was clear that Trump would remain steadfast in his position. Trudeau even traveled to Florida for a dinner meeting with Trump, knowing full well that the President has little patience for weak leaders, especially considering Trudeau is currently facing his own challenges.
In defense, Trudeau pointed out that the flow of illegal immigrants and drugs from Canada is significantly lower than from Mexico, but this assertion fell on deaf ears. While the numbers from Canada are indeed low, there has been a noticeable uptick in recent years that could escalate if not addressed. Trump believes that neither Canada nor Mexico is doing enough to curb these issues and has suggested he might lift tariffs if they take corrective measures, though such an outcome seems unlikely.
Canada stands to be affected most severely. The mere threat of even a 10% tariff has raised alarms among Canadian leaders. Ontario Premier Doug Ford described the situation as ‘a family member stabbing you right in the heart.’ South Korea also expressed concern, as increased tariffs could negatively affect its companies operating in Mexico and Canada.
The Canadian economy is already grappling with rising inflation and a high cost of living, contributing to the perception that the ‘Canadian dream’ is fading. Additional tariffs could exacerbate this situation, with Canadian estimates suggesting a potential loss of up to USD 21 billion (or CAD 30 billion) annually with a 10% tariff. A 25% tariff could worsen conditions even further.
Canadian Foreign Minister Melanie Joly and Prime Minister Trudeau have both noted that foreign nations are consulting with Canada for insights on how to navigate the Trump administration. However, when pressed for which nations specifically reached out, they were hesitant to respond. Faced with threats of 25% tariffs, their reassurances about managing relations with the US have become a source of ridicule on the global stage.
Trump seems to be leveraging the power of the US as the world’s largest importer to coerce countries, including allies, into compliance with US demands. He effectively employed similar tactics against China during his first term in office. To significantly address the illegal immigration issue, Canada would need to employ an additional 3,000 border security personnel—something impractical to achieve before Trump’s administration begins.
Tom Homan, the US official in charge of border issues, labeled the situation at the northern border with Canada as a ‘huge national security issue,’ stressing that Canada must recognize its role in preventing its territory from becoming a gateway for terrorism into the US. Canada has been criticized for its lax control over its border in the past.
The immediate repercussions of these tariff threats were quickly apparent. The Canadian dollar and the Mexican peso fell to their lowest values against the US dollar since 2020 and 2022, respectively, while the Chinese Yuan hit its lowest point since July this year. Trump has signaled his intent to renegotiate the United States-Mexico-Canada Trade Agreement further complicating matters for the Canadian economy.
The US understands that its main leverage can only come from imposing economic measures on its immediate neighbors, who pose no other security threats. While Canada could retaliate with its own tariffs on US goods, this may lead to a trade war that ultimately benefits Trump.
Adding another layer of complexity is the reverse migration of illegal immigrants from the US to Canada. As the US ramps up deportations, Canada is seen as a safer refuge. Additionally, India is expected to push the Trump administration for action on the Khalistan movement, which could increase pressure on Canada.
Trump has previously highlighted the protection of Hindus and fostering strong ties with India as campaign themes. Notably, most drug smuggling from Canada into the US involves Sikh extremist groups, an issue Canada will need to address to prevent tariff impositions.
Given Canada’s position as a weaker neighbor, its internal political dynamics are heavily influenced by its relations with the US. A candidate advocating for improved ties with its largest trading partner could gain popular support in upcoming elections. The relationship between Trump and Trudeau is notably strained, with both leaders having previously ridiculed one another. The imposition of tariffs, even at the 10% level, could seriously jeopardize Trudeau’s chances for re-election.
Moreover, Trudeau faces additional worry as many of Trump’s incoming cabinet members are not fond of him. Canadian academic Fen Hampson expressed, ‘I don’t see a whole lot of friends of Canada in there.’ Elon Musk and incoming National Security Advisor Mike Waltz have openly stated that Trudeau should step down, while Homan has bluntly stated, ‘You need to find a better man. He’s (Trudeau) terrible.’
The stark reality is that as long as Trudeau remains in power, improving US-Canada relations seems unlikely. The sooner Canada holds elections and potentially replaces Trudeau, the better positioned it may be for recovery.
Meanwhile, it’s crucial for other US allies, including India, to understand that despite assurances, US policies are likely to prioritize ‘America First,’ with allies coming second. While military cooperation may be evident, threats of economic repercussions are real and significant.
[The author is Major General (Retd)]
