Donald Trump has issued his worst threat to Canada in years, warning that on his first day in office he could impose economic sanctions across North America.
The US president-elect threatened on Monday evening to impose a 25 percent tariff on all products entering the country from Canada and Mexico on January 20, 2025, the day of his inauguration, unless those countries stop the flow of drugs and migrants crossing their borders.
“This Tariff will remain in effect until such time as drugs, especially Fentanyl, and all illegal aliens stop this Invasion of our Country!” Trump wrote on his social network Truth Social.
“Both Mexico and Canada have the absolute right and power to easily resolve this long-simmering problem. So we want them to exercise this power, and until they do, it's time for them to pay a very heavy price!”
The warning sent the Canadian dollar plunging nearly a cent at one point, before recovering slightly.
Such an import tariff would cause significant economic damage, raising the cost of Canadian and Mexican goods in their most important market.
Former president and CEO of the Canadian Chamber of Commerce Perrin Beatty says Canada needs to address concerns about the incoming Trump administration, such as border security, as 'provocations' won't work.
All of this happened, coincidentally, as Canadian cabinet ministers were meeting to discuss American relations, said a source in the organization.
The news also triggered a series of late-night phone calls: between Prime Minister Justin Trudeau and Trump, and between Trudeau and several provincial premiers, in an effort to ease the risks to the Canadian economy.
“It was a good conversation and they will continue to communicate,” the Canadian official said of the Trudeau-Trump phone call. The prime minister also spoke with the premiers of Ontario and Quebec.
Trump's complaint about the Canadian border didn't come out of nowhere. Canadian irregular migration to the US has increased in recent years. Trump's border chief Tom Homan has repeatedly spoken of the northern border as a national security threat; an easy access point for terrorists.
However, in terms of overall numbers, there is no comparison between the northern and southern borders. Canadian cases accounted for just one percent of the people caught by the US Border Patrol between checkpoints on the Mexican side, last year.
Trudeau made that point to Trump during the phone call, an agency source said. Canada has also taken steps in recent months to address US concerns, reimposing visa requirements for travelers from Mexico, and announcing separate reductions in immigration.
Negotiation plan or real plan?
It remains unclear whether Trump actually intends to proceed with the idea as outlined. Another feature of his first term was issuing occasional trade threats as part of negotiations.
At the beginning of his administration, Trump was about to announce his intention to cancel the North American Free Trade Agreement, just before negotiations on a revised agreement began.
When those talks hit a snag the following year, in 2018, he threatened to impose punitive tariffs on Canadian auto exports, only to withdraw that threat a few days later, when Canada and the US agreed on a revised trade deal.
But Trump sometimes follows through on these threats. He imposed tariffs on Canada in his first term, on steel and aluminum, before the countries could negotiate freely.
What's not clear is how this tax threat fits in with one of Trump's big campaign promises: lowering the cost of living in general for Americans, and the cost of gas in particular.
Oil is Canada's number 1 export to the United States. A 25 percent oil tax will challenge that infrastructure election promise.
Ian Lee, a professor at the Sprott School of Business at Carleton University, says that Donald Trump's proposed US tariffs on Canadian products would be 'disastrous' for the country's economy and currency, causing 'incalculable' damage.
One former Canadian cabinet minister responded to the news by recalling what it was like to deal with Trump in his first term.
“And so it begins,” Catherine McKenna, the former environment minister, wrote on the BlueSky social media platform, lamenting that Ottawa had already spent a “bonkers” amount of time and energy dealing with the first Trump administration.
The social media posts shocked Canadian prime ministers. Ontario Premier Doug Ford told X that the 25 percent tax would “hurt workers and jobs” in Canada and the US.
A 25 percent tariff would hurt workers and jobs in Canada and the US
The federal government needs to take this situation at our border seriously. We need Team Canada's approach and response—and we need it now. Prime Minister Trudeau must immediately call…
Ottawa must “take the situation at our border seriously,” he said, calling for a “team Canada” approach, involving prime ministers.
Ford has been asking Trudeau to meet with the prime minister, saying he and his fellow prime ministers want to discuss how Ottawa plans to deal with its relationship with Washington.
Predicting economic collapse
But Flavio Volpe, president of the Automotive Parts Manufacturing Association, urged patience, saying the interests of the Canadian auto industry are aligned with American interests.
“We have clarified whether it is possible for him to combine the issues of Canada and Mexico, we have been there,” said Volpe.
“We are prepared and connected.”
Economists have been struggling for months to assess the potential impact of Trump's tariffs on Canada.
Various estimates have pegged the potential damage to Canada at anywhere from less than half a point of GDP to a devastating five percent.
That's because the details of his plan were vague: he talked about a 10 percent world price, but sometimes changed the numbers around. It is also not clear what he can release, such as energy products.
But this is the first time in years that he has threatened Canada, in particular, and certainly the first time that he has threatened such a large tariff on every product.
