On Monday afternoon, U.S. President Donald Trump's across-the-board tariffs on Canadian goods were postponed for 30 days after Washington and Ottawa came to a deal that will see Canada bolster surveillance at the border against organized crime, fentanyl, and money laundering.
Trump was prepared to penalize Canada over dubious charges of lax drug control and illegal migration, a move that would have violated the continental trade agreement — the Canada-United States-Mexico Agreement — that Trump himself negotiated in 2020.
Although the tariffs have been shelved, significant damage has been done, and consumers and businesses across the country are now alive to the perils of overreliance on a single — and occasionally uncompromising — trading partner.
China braces
Trump also imposed a 10 per cent tariff on all Chinese goods. Initially, Beijing pledged to file a lawsuit at the World Trade Organization, a largely symbolic move in light of the WTO’s dysfunctional dispute settlement mechanism.
But after Trump’s tariffs came into effect early Tuesday morning, Beijing fired back, outlining tariffs of 10 to 15 per cent on select American goods including coal, cars, farm machinery, and oil, to kick in February 10. Chinese regulators also targeted Google with an anti-monopoly probe.
The 10 per cent tariff on China is lower than the 60 per cent figure aired by Trump on the campaign trail, suggesting a desire, for now, to avoid a complete rupture in relations and leave room for deal-making on issues such as TikTok.
Chinese businesses learned to diversify away from the U.S. during Trump’s first term: according to The Financial Review, “in 2017, China exported US$2.70 to emerging economies for every US$1 to the U.S... now that ratio is US$4.25 to US$1.” What’s more, in 2022, Chinese merchandise exports to the U.S. were only responsible for about three per cent of China’s GDP.
Japan winces
Trump’s threats against Canada show Indo-Pacific partners that — contrary to conventional wisdom in international relations — even if you are ‘at the table,’ you could still be on the menu.
An “on-edge” Japan, the U.S.’s fifth-largest trading partner, is hoping to steer clear of Trump’s tariff storm as well. In 2023, the U.S. had a merchandise trade deficit with Japan of US$71.2 billion. Japanese Prime Minister Ishiba Shigeru will be in Washington, D.C., for a three-day trip starting Thursday. He is expected to discuss economic security and stability in the Taiwan Strait with Trump.
Other U.S. partners in the Indo-Pacific could also be under threat. In 2023, the U.S.’s merchandise deficit with Vietnam hit US$104.6 billion, the third-largest deficit of any country after China and Mexico.
Diversification as defence
Canada relies on U.S. trade and investment much more than China: Canadian exports to the U.S. made up nearly 20 per cent of Canadian GDP in 2023.
According to APF Canada Investment Monitor data, in 2023, only four per cent of Canada’s merchandise trade was conducted with the seven Asia-based economies in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership; close to 67 per cent was conducted with the U.S. and Mexico.
What’s more, American FDI accounts for over half of all investment into Canada. Even with the tariffs shelved, foreign direct investment from Japan, China, and Australia — a sum totalling C$114.2 billion in 2023 — may decline due to lingering Canada-U.S. volatility.
