Canada’s tariff retaliation is a losing strategy

Tariffs meant to punish the United States risk hurting Canadian businesses and consumers more than Americans

They say we have to hear something seven times before we believe it.

If it is an idea that upsets some long-held beliefs, we may pull the adult equivalent of the childish trick of putting our hands over our ears and hollering “la la la” so we do not have to hear it at all.

There is one area in which such wilful deafness has been particularly noticeable: tariffs.

We have all heard it before, but too many are still reluctant to believe that tariffs do more harm than good. They harm the country that imposes them by making imports more expensive and less available, increasing both the cost of living for consumers and the cost of doing business.

Trump and other tariff supporters believe taxing imports will encourage American production and create jobs. Tariffs can encourage domestic production by making competing imports more expensive. But making more things does not necessarily mean creating many more jobs. Modern manufacturing relies heavily on machines, automation and software, so it takes fewer workers to produce many goods than it once did.

Canada has just provided another example.

On Sept. 8, Canadian counter-tariffs took effect on $27.6 billion worth of imports from the United States, including steel, dairy products, appliances, agricultural equipment and electronics. Ottawa says it is matching the latest U.S. tariffs dollar for dollar, with Canadian rates ranging from 15 per cent to 50 per cent.

The desire to hit back is understandable. When someone hits you, it is almost instinctive to hit back. But psychologically satisfying as retaliation may be, that does not make it good economic policy.

Canadian businesses are already being hurt by U.S. tariffs that make it more difficult and expensive to sell into their largest foreign market. Canadian counter-tariffs can add another problem by making American equipment, components and other inputs more expensive.

Ottawa also argues the tariffs will help Canadian producers compete against American goods in the Canadian market. But any protection they provide comes at a cost to businesses and consumers that rely on those imports.

Canadian tariffs are paid by Canadian importers when American goods enter the country. Those costs can then show up in higher prices, while consumers may also face less choice and, in some cases, goods disappearing from the Canadian market altogether.

The argument for counter-tariffs is that they will put enough economic and political pressure on the United States to persuade Washington to change course. But for that strategy to work, the pain we impose on the Americans has to be worth the pain we impose on ourselves.

Our economy is much smaller than that of the United States, and we are far more reliant on the American market than the United States is on ours. Almost 72 per cent of Canadian merchandise exports went to the United States last year.

Canadian tariffs can hurt particular American industries and may create some political pressure. But we have to ask whether that pressure is worth what the tariffs cost Canadians.

That is a poor bet.

Our tariffs are more like mosquito bites. They may sting and annoy, but we are likely to hurt ourselves more than we hurt the United States.

History also warns against escalating tariff wars. During the Great Depression of the 1930s, countries tried to protect their industries with tariffs. Other countries retaliated with tariffs of their own, helping drive a severe contraction in international trade and making an already terrible economic situation worse.

There is a lesson there that should not require seven repetitions.

Canada should resist Trump’s attempt to use access to the American market as leverage against us. But resisting does not require us to copy his economic policies.

There is a better way to fight back.

Canada needs to become less vulnerable to American economic pressure. That means building needed infrastructure as quickly as possible, removing obstacles to trade within Canada and finding more suppliers and customers outside the United States.

None of this means turning our backs on the Americans. Geography and the enormous size of their economy will always make the United States a natural and important trading partner.

But trade and dependence are not the same thing.

The less dependent we are on one market, the less power that market has over us.

Individuals, businesses and governments are already beginning to move in this direction. It will take time and it will cost money. But money spent making Canada more competitive and less dependent buys us something that retaliatory tariffs do not: greater economic freedom.

Perhaps, after hearing the lesson enough times, we will finally believe it.

Dr. Roslyn Kunin is a respected Canadian economist known for her extensive work in economic forecasting, public policy, and labour market analysis. She has held various prominent roles, including serving as the regional director for the federal government’s Department of Employment and Immigration in British Columbia and Yukon and as an adjunct professor at the University of British Columbia. Dr. Kunin is also recognized for her contributions to economic development, particularly in Western Canada.