The threat of economically damaging tariffs on Canadian goods is looming larger as U.S. president-elect Donald Trump’s inauguration draws closer — and there is little Canada can do to fight back against 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. That’s how he justified slapping tariffs on Canadian steel and aluminum in 2018, which kicked off a cross-border trade war during Trump’s first term.
This time, Trump may go further.
CNN reported Wednesday, citing multiple sources, that the president-elect is considering declaring a national emergency to provide legal justification for universal tariffs on foreign imports, including the 25 per cent levy he’s threatened against Canada and Mexico.
The move would allow Trump to use a federal law that authorizes a president to manage imports during an emergency, according to the report, which neither Global News nor the Trump administration has confirmed.
Trade policy experts say the national emergency declaration is a likely tool that Trump could use to impose tariffs on allies and adversaries alike because it can be used “expeditiously.”
“(Trump) is trying to use any measure that he has, any tool in his toolbox, to impose tariffs as quickly as he can,” said Andreas Schotter, a professor of international business at the Ivey Business School at Western University.
How did Trump impose tariffs the first time?
In 2018, Trump signed an executive order that laid 25 per cent tariffs on imported steel and 10 per cent tariffs on aluminum. Despite initially being exempted, Canada and Mexico were included in May 2018.
The action was taken under Section 232 of the U.S. Trade Expansion Act, which allows a president to impose tariffs on specific products if they are being imported into the U.S. in quantities or circumstances that “threaten or impair national security.”
The law requires the president to first ask the U.S. commerce secretary 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.
After retaliatory actions, the U.S., Canada and Mexico reached an agreement to lift the Section 232 tariffs in May 2019.
By that time, the three countries had negotiated the Canada-United States-Mexico Agreement (CUSMA), which replaced the North American Free Trade Agreement (NAFTA).
What is Trump considering this time?
According to CNN, Trump intends to invoke the International Economic Emergency 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 1917 Trading With the Enemy Act, through which a president can impose any tariff while the U.S. is at war.
Trump would not have to order a report or otherwise involve anyone else in his decision, unlike with Section 232 and another statute, Section 301 of the Trade Act, which targets unfair foreign trade practices and has been used to tariff Chinese goods.
“The quickest way by far (to impose tariffs) is the use of the IEEPA,” said Werner Antweiler, a professor and chair of international trade policy at the University of British Columbia’s Sauder School of Business.
Trump last used the law in 2019 to threaten Mexico with tariffs unless the country did more to stop irregular migration to the U.S. The tariffs were ultimately not implemented after the U.S. and Mexico agreed on a “Remain in Mexico” policy for U.S. asylum-seekers.
CNN noted in its report 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 the IEEPA on a grander scale.
Unlike the Trading With the Enemy Act, the IEEPA does not mention “tariff” in any way. Instead, it says the president can “investigate, regulate or prohibit” foreign exchange transactions, currency and property imports, and banking and credit transfers.
Before Trump, the IEEPA has been typically used against foreign adversaries like Iran to block U.S. financial assets.
Former U.S. president Richard Nixon invoked the law in 1971 to impose a 10 per cent universal tariff to ease a balance of payments crisis and push Germany and Japan to strengthen the value of their currencies against the U.S. dollar.
Shouldn't CUSMA stop this?
Experts point out that while the negotiation of CUSMA may have helped end the Section 232 tariffs, there’s nothing in the trade pact that stops Trump from using the statute again, or any other executive authority under a national emergency or national security considerations.
“These agreements all depend on the goodwill of the countries to abide by these terms and use the dispute resolution mechanisms that are enshrined in them,” Antweiler said.
“If countries take unilateral actions that are completely violating the spirit of these treaties, and it means these treaties are no longer in effect.”
Canada could dispute Trump’s tariffs by filing a complaint through CUSMA or the World Trade Organization, but those processes can take months or even years.
Schotter said diplomatic engagement with key American stakeholders — particularly with key trading states that also happen to be politically valuable, like Pennsylvania and Michigan — remains the best way to make the case that widespread tariffs and a resulting trade war will be economically damaging.
He added the Canadian government needed to diversify its foreign trade years before this impending crisis began, but should still be pursuing those relationships now that U.S. tariffs are looming.
Beyond that, he said, “we don’t have a lot of muscle” to fight back.
—with files from Reuters