Exploiting trade as a weapon The Excelsior 05 Dec 2024
Incoming US President, Donald Trump, mentioned that amongst his first acts as President would be imposing 25% tariffs on all imports from Canada and Mexico as also an additional 10% on imports from China. The reason given was illegal immigration and movement of drugs from Mexico and Canada, while it was fentanyl smuggling from China. This is not the first time Trump has done so. In 2018 he imposed 25% tariff on Canadian steel and 10% on aluminium stating, ‘national security concerns.’
Trump had recently tweeted, ‘Thousands of people are pouring through Mexico and Canada, bringing crime and drugs at levels never seen before.’ Despite political pressure both nations did little to stem the flow of immigrants. Trump always employs economic coercion when nations are unwilling to act. Canada exports 77% of its produce to the US while Mexico 80%. Increased tariffs could signal a recession in both nations.
Trump’s decision would also impact US citizens as tariffs add to cost of imports. Trudeau, the Canadian PM, in a subsequent tele-conversation with Trump discussed trade and border security. It was evident that Trump is unlikely to bend. He also flew into Florida for a dinner-meeting with Trump. It is known that Trump dislikes weak heads of state and Trudeau is currently struggling to survive.
Trudeau defended Canadian actions by stating that illegal immigrants and movement of drugs from Canada are far less than those from Mexico, however it cut no ice. The reality remains that while numbers are low, there has been a spurt in the recent years. If unchecked, they could escalate. Trump believes that both nations are not doing enough. He promised to rollback tariffs once they clamped down on illegal activities, which is unlikely.
Canada would be more severely impacted. The threat of even 10% tariffs has the nation worried. Comments on its impact on the Canadian economy have flowed from the national leadership. The Ontario Premier, Doug Ford, termed it as ‘a family member stabbing you right in the heart.’ Even Seoul reacted as increased tariffs could impact South Korean companies based in Mexico and Canada.
The Canadian economy is already in trouble, with rising inflation and high costs of living. It is now a fact that the ‘Canadian dream’ no longer exists. Additional tariffs would only make it worse. As per a Canadian assessment, the economy would lose upto USD 21 billion (Canadian Dollar 30 billion) a year in economic costs with just 10% tariffs. At 25% tariffs it could make matters worse.
Melanie Joly, the Canadian Foreign Minister, and Justin Trudeau had both mentioned to the media that nations have been approaching Canada to gather inputs on how to manage the Trump administration. When questioned on which nations approached them, there was no response. With threats of 25% tariffs, all their claims of managing US administrations have turned into a global joke.
Trump, aware that his country is the world’s largest importer, is exploiting trade to compel nations, including allies, to toe the US line as also meet its demands. He had successfully employed it against China in his first term as President. If Canada is to stop movement of illegal immigrants it would need to hire an additional 3000 border security personnel, not possible in the period leading to the commencement of the Trump term. Further, it would add to costs, which the Trudeau administration is unwilling to accept.
Trump’s official in charge of US border issues, Tom Homan, mentioned, ‘The problem with the northern border (Canada) is a huge national security issue,’ adding, ‘There has to be an understanding from Canada that they can’t be a gateway to terrorists coming into the US.’ Over the years Canada had been lax in controlling movement from its side to the US.
The impact of the impending threat was visible almost immediately. The Canadian dollar and the Mexican peso slipped to their lowest level against US dollar since 2020 and 2022, while the Chinese Yuan was at its lowest since July this year. Trump has also hinted that he intends to re-negotiate the United States-Mexico-Canada Trade Agreement. This will further damage the Canadian economy
The US is aware that it can only respond with economic actions against its immediate neighbours. They face no other threats and hence cannot be coerced any other way. Canada could also impose retaliatory tariffs on US goods, but this would imply a trade war with the US which would benefit Trump.
Adding to pressure is reverse migration of illegal immigrants from the US to Canada. As the US begins identification and deportation, the safest haven for them is Canada. India will also be lobbying the Trump administration to crackdown on the Khalistan movement. If India does succeed, there will be added pressure on Canada.
Trump had specifically raised protection of Hindu’s and close ties with India during his campaigning. Most drug smuggling from Canada to the US involve Sikh extremist groups, on which Canada must clamp down to prevent tariffs from being imposed.
Being a weaker neighbour, Canada’s internal politics are governed by its relations with the US. A candidate who can push for better ties with its largest trading partner is bound to benefit in the forthcoming elections. Trump and Trudeau dislike each other, as also Trump traditionally avoids interacting with weak leaders. Both have mocked one another in the past. Imposition of tariffs, maybe even 10%, could damage whatever little chance Trudeau has of being re-elected.
To add to Trudeau’s concern is that most of Trump’s incoming cabinet dislikes him. As per Canadian professor Fen Hampson, ‘I don’t see a whole lot of friends of Canada in there (US cabinet).’ Elon Musk and incoming National Security Advisor, Mike Waltz, have repeatedly mentioned that Trudeau must go. Tom Homan, Trump’s border czar even mentioned, ‘You need to find a better man. He’s (Trudeau) terrible.’
There is no doubt that as long as Trudeau remains in the chair, relations with the US will not improve. The faster Canada has elections, the faster Trudeau is removed, the better for the country.
Meanwhile, other US allies, including India, must realize that despite all promises, the policies adopted by the US, will remain ‘America First,’ allies later. While it may cooperate militarily, it could threaten economic actions.
About the Author
Maj Gen Harsha Kakkar
Retired Major General Indian Army
Good article. 👍
Thank you