The threat of economically damaging tariffs on Canadian goods looms larger as the inauguration of U.S. President-elect Donald Trump approaches — and there is little Canada can do to counter the tools at Trump’s disposal.
Although Congress typically oversees tariff and tax policy, Trump has broad executive authority to impose tariffs for national security reasons. In this way, he justified the imposition of tariffs on Canadian steel and aluminum in 2018, which sparked a cross-border trade war during Trump’s first term.
This time, Trump may go further.
CNN reported WednesdayCiting multiple sources, the president-elect is considering declaring a national emergency to provide a legal justification for global tariffs on foreign imports, including the 25 per cent tax he has threatened against Canada and Mexico.
The move would allow Trump to use a federal law that allows the president to manage imports during a state of emergency, according to the report, something neither Global News nor the Trump administration has confirmed.
Trade policy experts say a national emergency declaration is a potential tool Trump could use to impose tariffs on allies and adversaries alike because it can be used “with urgency.”
“(Trump) is trying to use whatever measure he has, whatever tool he has at hand, to impose tariffs as quickly as he can,” said Andreas Schutter, a professor of international business at Western University’s Ivey Business School.
How did Trump impose tariffs the first time?
In 2018, Trump signed an executive order imposing tariffs of 25% on imported steel and 10% on aluminum. Although initially exempt, Canada and Mexico were included in May 2018.
The action was taken under Section 232 of the US Trade Expansion Act, which allows the president to impose tariffs on certain products if they are imported into the United States in quantities or conditions that “threaten or impair the national security.”
The law requires the president to first ask the US Secretary of Commerce to investigate those imports and issue a recommendation on whether tariffs are necessary. Trump ordered the investigation in early 2017, and the reports were delivered to him the following January.
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After retaliatory actions, the United States, Canada and Mexico reached an agreement to lift Section 232 tariffs in May 2019.
By then, the three countries had negotiated the Canada-United States-Mexico Agreement (CUSMA), which replaced the North American Free Trade Agreement (NAFTA).
What is Trump thinking this time?
According to CNN, Trump intends to invoke the International Emergency Economic Powers Act (IEEPA), which allows the president to unilaterally manage imports during a national emergency.
The law, passed in 1977, is an update to the Commerce with the Enemy Act of 1917, under which the president can impose any tariffs while the United States is at war.
Trump will not have to request a report or involve anyone else in his decision, unlike Section 232 and another law, Section 301 of the Trade Act, which targets unfair foreign trade practices and has been used to impose tariffs on Chinese goods.
“The quickest way so far (to impose tariffs) is to use IEEPA,” said Werner Antwiler, professor and chair of international trade policy at the University of British Columbia’s Sauder Business School.
Trump last used the law in 2019 to threaten Mexico with tariffs unless the country did more to stop illegal immigration into the United States. The tariffs were ultimately not implemented after the United States and Mexico agreed to a “Remain in Mexico” policy for American asylum seekers.
CNN noted in its report on Wednesday that the U.S. Chamber of Commerce and other business groups prepared legal challenges at the time, suggesting they may do so again if Trump invokes IEEPA more broadly.
In contrast to the Trade with the Enemy Act, the IEEPA does not mention a “tariff” in any way. Instead, the law states that the president can “investigate, regulate, or prohibit” foreign exchange transactions, imports of currency and real estate, and bank and credit transfers.
Before Trump, IEEPA was typically used against foreign adversaries like Iran to block U.S. financial assets.
Former US President Richard Nixon invoked the law in 1971 to impose a 10 percent global tariff to ease the balance of payments crisis and prompt Germany and Japan to strengthen the value of their currencies against the US dollar.
Shouldn’t CUSMA stop this?
Experts point out that although negotiations over CUSMA may have helped end the Section 232 definitions, nothing in the trade agreement prevents Trump from using the law again, or any other executive authority under a national emergency or national security considerations.
“These agreements all depend on the good faith of states to adhere to these terms and use the dispute resolution mechanisms set forth in them,” Antwiler said.
“If states take unilateral actions that completely violate the spirit of these treaties, it means that these treaties are no longer in force.”
Canada can object to Trump’s tariffs by filing a complaint through CUSMA or the World Trade Organization, but those processes can take months or even years.
Diplomatic engagement with key U.S. stakeholders — especially with major trading nations that also hold political value, such as Pennsylvania and Michigan — remains the best way to demonstrate that broad tariffs and the resulting trade war would be economically damaging, Shooter said.
He added that the Canadian government needs to diversify its foreign trade years before this impending crisis begins, but must continue to pursue these relationships now that US tariffs are looming.
Moreover, he added, “we don’t have a lot of muscle” to respond.
– With files from Reuters
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