The U.S. is threatening a two-stage tariff plan in which Canada and Mexico could get hit with initial trade penalties within days then face broader penalties this spring.
In summary it’s: Maybe tariffs now, and maybe more tariffs later.
The details emerged Wednesday at the U.S. Senate confirmation hearing for the person chosen to lead President Donald Trump’s tariff policy, Howard Lutnick.
It occurred as Canadian officials engaged in frantic last-ditch efforts to dissuade U.S. officials from imposing tariffs as threatened by Feb. 1, even producing a video demonstrating Canada’s border enforcement.
The nominee for commerce secretary laid out that two-step approach in an exchange with Michigan Sen. Gary Peters, who expressed fear about what a cross-border trade war could mean for his state.
Lutnick explained that Phase 1 is essentially an emergency action to deal with the fentanyl crisis: “You know that the [drug] labs in Canada are run by Mexican cartels,” Lutnick replied. “Respect America. If we are your biggest trading partner, show us the respect. Shut your border. And end fentanyl coming into this country.”
Although only about one per cent of illegal drugs entering the U.S. is coming from its northern border, U.S. officials are worried about growing drug production in Canada, and the perceived failure of Canadian law-enforcement to crack down on money-laundering activities by international criminal organizations there.
Lutnick noted that Canada and Mexico appear to be taking some action. Canada, for instance, has announced a slew of measures on the border, migration and crime that elicited positive reaction from Washington.
That said, Canadian officials are reluctantly bracing for the possibility that Trump will make good on his threat to impose tariffs on Feb. 1 and upend decades of North American free trade.
Ottawa officials have been reaching out to various American counterparts, including Lutnick, and have heard little that left them reassured.
One reply they’ve repeatedly received: They need to personally convince Trump with direct evidence of the security measures Canada has taken.
To that end, Canadian officials have been cobbling together video footage to illustrate efforts to deter illicit movement across the border; they’ve been sending U.S. counterparts this footage in recent weeks, including a helicopter landing in snow.
Prime Minister Justin Trudeau also told Canada’s premiers that he spoke with Lutnick in Poland this week at the 80th anniversary of the liberation of the Auschwitz death camp.
Lutnick alluded to these conversations Wednesday.
“I know they are acting swiftly,” he said of Mexico and Canada. “And if they execute, there will be no tariff. And if they don’t, then there will be.”
In her first-ever White House briefing, press secretary Karoline Leavitt said based on her conversation with U.S. President Donald Trump, his plan to slap 25 per cent tariffs on Canada on Feb. 1 is ‘still on the books.’
The longer-term threat: April 1
But then the other shoe risks dropping. Lutnick made clear that the U.S. is looking at a broad range of tariff options, which will be informed by a study the president has demanded from his officials by April 1.
Lutnick made clear at his confirmation hearing that there will be scores to settle with Canada in the spring, specifically mentioning dairy and auto manufacturing.
He told a Wisconsin Democrat, Tammy Baldwin, that he wants more U.S. dairy exported to Canada: “Canada … treats our dairy farmers horribly. That’s got to end.”
And then he told Peters, the Michigan Democrat, that his goal will be to steer auto manufacturing jobs back from other North American countries: “The car manufacturing went to Canada, it went to Mexico. It’s important that that come back to Michigan, come back to Ohio.”
The message underscores Trump’s longstanding complaints about the way certain rules for auto trade have been implemented from the North American pact he signed in 2018.
It appears that, even if Canada and Mexico escape the tariff hammer threatened for Feb. 1, the issue will continue looming overhead for months.
