Lessons from US Tariff Announcements for Canada’s Next Move: Trade Crisis Working Group

April 14, 2025 – US President Donald Trump’s April 2^nd tariff announcement and subsequent 90-day pause offers critical lessons for Canada – especially with potential trade and security negotiations on the horizon, according to a new C.D. Howe Institute report.

A new Communiqué from the C.D. Howe Institute’s Trade Crisis Working Group, which met on April 7^th, notes that based on the April 2^nd tariff announcement and subsequent developments, the US is interested in negotiating new trade arrangements with its closest partners and allies. With many countries in line for these talks, the Trade Crisis Working Group supports Canada prioritizing such talks, while simultaneously de-risking its economic prospects and building leverage toward the successful pursuit of our country’s own interests in a radically changed international policy environment.

As discussed in previous meetings of the group and elaborated on in its March 19 and April 7 meetings, de-risking and building leverage involve Canada:

• Lifting obstacles to major economically sensible projects, boosting its defence, diversifying its trade, removing internal trade barriers and adopting other measures to boost our country’s productivity and economic security;
• Avoiding retaliation or pursuing moderate retaliation and use clear messages to make an impact on Americans’ perception of the costs of arbitrary barriers to trade;
• Supporting otherwise competitive businesses affected by US tariffs through the crisis; and
• Carefully considering pursuing alliances with like-minded nations to enhance and protect international rules-based trade.

The group also highlighted that the United States could have chosen to withdraw from the Canada-United States-Mexico Agreement (CUSMA), but has not done so, and zero tariffs remain in effect for products which are certified as being of North American origin under the agreement’s rules of origin, which are not affected by s. 232 tariffs.

“Furthermore, the April 2 tariff reveal, with its special punishment of countries with which the US runs a trade deficit, and subsequent comments by administration officials, lend weight to earlier pronouncements by Mr. Trump that his ‘end game’ is that he doesn’t want big deficits.”

This, alongside the known list of specific issues the United States holds against Canada, which are likely to be presented to negotiators as part of an accelerated review of CUSMA, and the US indicating that successful tariff negotiations with any country will hinge in part on trading partners taking “significant steps to remedy non-reciprocal trade arrangements and align sufficiently with the United States on economic and national security matters,” suggest a wide scope on negotiations immediately ahead, although some group participants recommended keeping the range of issues as narrow as possible.

That said, the group agreed that aligning Canada’s negotiating strategy with what matters most to the US was key, and that our country should amplify the fact-based narrative that Canada’s trade with the US supports the latter’s industrial strength.

For example, on North America’s integrated auto production chain, the group said that in the short term, without some accommodation for Canada and Mexico on the auto tariffs imposed by President Trump, “the United States is shooting its own economy in the foot.” Likewise, for steel and aluminum, the US does not have a lot of instant substitutes. These facts could bring the US administration to a reasonable position, out of necessity.

Overall, the group remains hopeful that zero or lower duties as well as greater clarity on the scope of tariffs (e.g. for auto parts) can also be achieved through forthcoming negotiations for the products subjected or soon to be subjected to s. 232 tariffs.

Nevertheless, “a clear-eyed view of the situation is that access to the United States market from Canada is now forever tainted by the threat of tariffs,” according to the Trade Crisis Working Group. Reaching a mutually reasonable and durable accommodation that could at least partially remove this taint might require Canada to contemplate new and imaginative solutions speaking to a broad range of US priorities, including its trade deficit, notes the Communiqué.

For more information, contact: Daniel Schwanen, Senior Vice-President, C.D. Howe Institute; Lauren Malyk, Manager, Communications, C.D. Howe Institute, 416-873-6168, lmalyk@cdhowe.org

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