Facing tariffs threatening to “wipe out growth” in Canada’s economy for the next two years, as the central bank’s governor recently put it, Canada should seek to diversify trade with the European Union, Britain and Japan, says the director of the U.S.-based Wilson Centre’s Canada Institute.
Another tactic would be to provide data-driven information to Americans about how a trade war would also hurt the United States.
But in the short-term, Canadians are absolutely correct to forge ahead with counter-tariffs, Christopher Sands, director of the Canada Institute, said in a Global Risk Institute webinar Tuesday. One key reason? U.S. President Donald Trump would not respect Canada if it didn’t stand firm against his use of tariffs, Sands said.
Diversifying trade partners
Sands drew a parallel between Canada and the European Union being abandoned by what was once their reliable NATO partner, the United States of America. This sudden shift in the U.S. defence policy also gives Canada and the EU common cause economically, Sands observes, since they now find themselves with restricted access to U.S. markets. And they already have the EU-Canada Comprehensive Economic and Trade Agreement (CETA) in place.
“I would add Britain to that mix, because Britain is both an important defense ally outside the European Union, but, like Canada, alienated from the block next door, which is its big market it traditionally relies on,” he says. “There’s some common cause between Britain and Canada, which I think is important.
“And then you look at Asia. Japan is a natural partner for Canada. They desperately want Canadian energy to stop buying LNG [liquefied natural gas] from the Russians…So Canada will have a lot of friends abroad.”
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Data-driven defence
Canada would also do well to quantify the impact of tariffs on Americans, says Sands. Many people in the U.S. lack understanding of how they’re affected by trade with Canada. Using data to tell this story would help make its case against tariffs, he recommends.
“Jim Haley, a former Canadian executive director at the IMF, a long time Canadian policy maker, used AI to assess Canada’s retaliatory tariff strategy,” he says. “And he looked at how [tariffs] affect Red [Republican] states and particular members of Congress. He found [Canada’s] strategy [of counter-tariffs] was highly targeted and focused.”
That’s using AI technology on the offensive side, Sands says. In other words, using data to identify targets in a potential trade war. But data can also be used for ‘defensive’ purposes, meaning data can be used to defend an open-border, non-tariff approach to trade.
For example, Sands referenced data collected while the US-Mexico-Canada Trade Agreement (USMCA) was negotiated during Trump’s first term in office (2016-2020).
“Ever since USMCA, and a little bit before, we’ve been using electronic bills of lading [in shipping] so we have data that’s mineable,” Sands said. “The USMCA even says, with personal identifying characteristics sometimes removed, we should mine publicly collected data. On electronic bills of lading, we know the value of the HS code and the zip code of where everything goes.”
A Harmonized System (HS) code is a standardized product identifier used on bills of lading and other shipping documents.
Sands says data collected from the bills of lading on shipments to and from Canada can help “break that sense that U.S. data says trade occurs at the border, where it’s first reported, and give people a more comprehensive picture of the way in which our economy now works.”
He said “many people, including many Trump voters, would be surprised,” by what the data shows. “Remember, if they’re Millennials, Generation Z, they’re going to be much more comfortable with the data and with the technology that it takes to run it than, say, somebody of Donald Trump’s vintage. So that’s the future.”
Sands says Canada should get Americans to engage with the data. That would help Americans “realize just how globalization has affected [the U.S.] and…how North American competitiveness really does come from our connectivity and all the barriers we’ve been able to remove between us.”
Should Canada retaliate with counter-tariffs?
One webinar audience member asked if Canada should emphasize negotiation over engaging in a trade war by using counter-tariffs. Sands says he has no issue with Canada’s applying retaliatory tariffs on United States goods.
He noted President Trump said in his first term that he expects all world leaders, including Xi Jinping in China and Vladimir Putin in Russia, to put their people first.
“That’s how [Trump] sees the world,” Sands says. “So, if Canada responds to him by saying, ‘Oh, well, you know, please don’t hit us with tariffs, we’ll give you whatever you want,’ that’s not going to gain his respect.
“But if Canada says, ‘Two can play this game and we’re both going to lose, but we’re willing to go, if that’s what you want…’ that’s not a bad approach to somebody like Donald Trump.
“It’s unlikely [to] pull the whole U.S. down. But standing up for yourself, pushing back and saying, ‘There’s nothing wrong with being Canadian. We can do what we say we’re going to do, and we will do it, but we’re not going to be bullied and insulted,’ is not a bad stance. I don’t think it will hurt you with [Trump] at all.”
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