'It’s going to be painful': Trade watchers warn of tit-for-tat escalation between U.S. and Canada

OTTAWA — Canada’s retaliatory tariffs are set to take effect on Tuesday and with an American response almost inevitable, trade watchers are warning Canada should prepare itself for economic pain.

“We may be in an escalating war, and the question is who’s going to have the greater threshold for pain in this, and are Canadians ready for it because it’s going to be painful,” said Fen Osler Hampson, professor of International Affairs at Carleton University.

“I think it may be too early to go back to the table because the Americans will simply throw the same demands at us, and you know if they were unacceptable first-time around, are they going to be more the second time around?” said Hampson.

Negotiations between Canadian and American officials have remained stalled since Aug. 21, after Prime Minister Mark Carney paused trade talks with the U.S.

As a result, a 50 per-cent U.S. tariff on nearly $28 billion worth of Canadian goods has come into effect, under Section 338 of the Tariff Act of 1930. In response, Carney intends to impose retaliatory tariffs ranging from 15 to 50 per cent on $27.6 billion worth of U.S. goods.

United States Trade Representative Jamieson Greer has said the U.S. has drawn up potential options to respond to Canada’s tariffs. He told Fox News last Thursday that negotiations remain stalled, but he has exchanged a few texts with the Canadian side.

Carney and Canada-U.S. Trade Minister Dominic LeBlanc have both expressed a willingness to return to the table, but only with a change in “attitude” on the American side.

“I don’t see in the language from Carney and LeBlanc that would lead me to think that they have left themselves room to back down, and I also think there’s too much political advantage to them within Canada to keep the line that they’re taking,” said Mark Warner, trade lawyer at Maaw Law.

“The only position they seem to have left themselves open for is for the American president, in this case Trump, to basically fall on his own sword and say, ‘Okay, you win,’ and that’s just not going to happen,” he added.

Brian Clow, former deputy chief of staff to prime minister Justin Trudeau, said there is a possible scenario where the increased escalation could bring the two parties back to the negotiation table.

“I’m not betting on that,” said Clow. “I certainly wouldn’t bet my house on that, but it’s possible, and it’s one of the scenarios here.”

Clow also said it was significant that Trump’s first retaliatory response after talks broke down was to threaten an increase in tariffs on Canadian autos and trucks in January, a full four months from now.

“That is telling and shows that he can’t go too far on his tariff policies,” he said, adding that it would be interesting to see how the U.S. responds on Tuesday.

Hampson said Canada’s trade conflict with the U.S. could have a “compounding” effect on domestic pressures that are already facing the president, including the Iran war, inflation, a slowing economy and ongoing issues with the U.S. bond market.

On the political front though, Clow said the impact of the upcoming U.S. midterms in November on Trump’s tariff agenda is “overstated.”

“I’m not saying there’s no impact, but I I think some people are putting too much optimism or confidence that the House of Representatives flipping to the Democrats will somehow, therefore, resolve the tariff issue,” he said.

Carney is likely to face his own domestic economic pressures.

University of Calgary professor and economist Trevor Tombe has estimated 87,000 Canadian jobs could be at risk from the 50 per-cent Section 338 tariffs. The Canadian retaliatory tariffs could also raise costs for Canadians, with Tombe estimating $250 in additional costs per year for households with children.

Still, Carney holds significant political capital, and polling suggests Canadians support the prime minister walking away from a bad deal.

Warner said polled Canadians believe they can withstand the pain from tariff escalation with the U.S., but he wonders how long that could last.

“So the question is, what does that mean as it (trade war) starts to bite more?” he said.

National Post

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