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John Ivison: Trump’s tariffs on Canada are about to get worse

Other Canadian industries are in the administration's crosshairs, and the president has plenty of tariff ammunition still left to deploy

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The 6-3 majority U.S. Supreme Court decision on the unlawful nature of President Donald Trump’s emergency act tariffs suggests democracy is still alive in the Great Republic.

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Friday’s decision reaffirmed the basic constitutional principle about the separation of powers between Congress and the president, clarifying that Trump has no authority on his own to impose tariffs using the International Emergency Economic Powers Act (IEEPA) because the Constitution gives that power to Congress.

John Ivison: Trump’s tariffs on Canada are about to get worse Back to video

The ruling drops the average “posted” tariff rate to around seven per cent from 16 per cent.

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It is a setback for the president, particularly given the prospect the government will have to return billions of dollars it has collected from importers.

But Trump is like a tank with no reverse gears. He said on social media that the court had approved all other tariffs (than those collected under the IEEPA) “of which there are many.”

The president was in ominous mode. “They can be used in a much more powerful and obnoxious way, with legal certainty, than the tariffs as initially used,” he said.

That bodes ill for Canada. As Michael Gregory, deputy chief economist at BMO Capital Markets, pointed out in a research note, national security tariffs, under Section 232 of the U.S. Trade Expansion Act, will remain in place. That means tariffs on steel and aluminum, autos and parts, copper products, lumber and wood products, trucks and buses will not see any relief.

The impact on production and employment is devastating. Canadian auto manufacturing fell 5.4 per cent year on year, as carmakers idled plants and shifted production south. The 25 per cent tariff imposed under Section 232 was mitigated by the exemption of parts that are CUSMA-compliant, meaning an effective rate on Canadian-produced autos was 15-20 per cent (higher than for the EU, Japan or South Korea).

The trendline is concerning. TD Economics is forecasting another four per cent decline in production this year, and that’s if CUSMA exemptions are renewed.

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Other Canadian industries could soon face a similar trajectory. As Gregory pointed out, the U.S. has conducted nine industry investigations (completed or pending), without announcing tariff recommendations. He suggested the Trump administration was waiting for the Supreme Court decision before unleashing a barrage of new sectoral duties.

The U.S. has already completed investigations into the semiconductor, pharmaceutical, processed critical mineral, commercial aircraft and jet engine industries.

Other studies in progress include polysilicon (a key input for solar panels), drones, wind turbines, medical equipment and robotics.

A report from the Council of Foreign Relations suggested that, in total, US$156 billion of Canadian exports are covered by existing or potential section 232 tariffs.

“Trump has already talked about tariffs on commercial aircraft because Canada was slow in certifying Gulfstream jets. In all likelihood, the only reason he felt he had the ability to do that was because the study was already done,” Gregory said.

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Supreme Court Chief Justice John Roberts broadly defended Congress’s sole power under the Constitution to levy duties and taxes.

Republican senators, including Mitch McConnell, have said that the court’s decision makes the executive’s options crystal clear: “If the executive would like to enact trade policies that impact American producers and consumers, its path forward is … convince their representatives under Article 1 (of the Constitution, which gives Congress the power to make laws, levy taxes, coin money and declare war),” McConnell said Friday.

Yet, Trump is adamant that he alone has the authority to judge what might impair national security. Gregory said there are reports that other industries, including the bakery industry, may seek the cover of national security tariffs.

Trump may also pursue trade action against Canada citing Section 301 of the Trade Expansion Act that gives the administration power to take action against “unfair trading practices,” ranging from Canada’s supply-management system for dairy to its provincial liquor boards.

The signs are that the trade war is going to get worse before it gets better.

But two developments are working in Canada’s favour.

One is that members of Congress up for re-election in November are starting to show that their fear of hard-up voters is outweighing their fear of Trump.

Six House Republicans voted against the president’s tariffs on Canada earlier this month, just as the Congressional Budget Office said that 95 per cent of tariffs were passed on to consumers and businesses, raising inflation, reducing investment, lowering GDP and reducing employment.

BMO’s Gregory said he anticipated more impact on American prices from tariffs than has been the case, but the reason appears to be that businesses are absorbing the cost and reducing spending elsewhere. “The economy is feeling it and where it is feeling it is in jobs: businesses are not going to hire as much,” he said.

Six out of 10 Americans disapprove of Trump’s tariffs and he can only ignore voters for so long.

The second area of prospective relief for Canada is the renewal, and even expansion, of the Canada-U.S.-Mexico trade agreement.

“That’s the best way to avoid all of this,” said Goldy Hyder, president of the Business Council of Canada.

Hyder said if Trump had wanted to withdraw from CUSMA, he would have done so a long time ago. “He’s negotiating.”

He said the goal is to get an extension to a trilateral agreement, under which all tariffs are compliant with CUSMA.

A new Nanos poll for the Business Council suggests the Canadian public is overwhelmingly behind an extension of CUSMA, with 87 per cent saying it is important for the financial well-being of Canadians.

“Free trade is over with, so we need to get the lowest net effective rate in the world. Then we win,” Hyder said.

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