Tariff retaliation is a dead end. Canada needs to retool its economy, not chase self-defeating tariffs
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On Saturday, U.S. President Donald Trump imposed a 25 per cent tariff on most Canadian imports and a 10 per cent tariff on energy products. In response, Prime Minister Justin Trudeau’s government announced retaliatory tariffs of 25 per cent on $107 billion worth of U.S. goods, effective Feb. 4.
This response is the wrong approach.
Retaliatory tariffs may make a strong political statement, but history shows they are rarely effective. The United States has a significant economic advantage in this dispute. Canada is far more dependent on U.S. trade than the U.S. is on Canada. In 2023, 77 per cent of Canada’s exports went to the U.S., while only 17.5 per cent of U.S. exports came to Canada. That means Canada will feel the impact of a trade war much more than Americans will.
The federal government argues these countermeasures will pressure Washington to reverse course. The reality is, they will not. Tariffs on items such as orange juice, peanut butter and beer may generate headlines, but they will do little to influence U.S. policy. However, they will make life more expensive for Canadians. Businesses will pass these increased costs on to consumers, reducing purchasing power at a time when inflation remains a concern. Industries that rely on imported U.S. goods, such as the food and beverage sector, will face higher costs, potentially leading to job losses or business closures.
 Canada must outgrow U.S. dependence, not fight a losing tariff battle. |
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Rather than escalating a trade dispute Canada is unlikely to win, the government should focus on making the country economically stronger, more competitive and less reliant on the U.S. This requires reducing bureaucratic barriers, supporting businesses and expanding trade agreements beyond North America.
Government inefficiency remains one of the biggest obstacles to economic growth. Excessive regulations and slow-moving approval processes stifle business expansion and drive up costs. In Vancouver, obtaining a building permit can take months or even years, contributing to the housing crisis and rising real estate prices. Developers face costly delays, limiting new housing supply and driving up rents. Meanwhile, Kelowna has adopted artificial intelligence to streamline the process, reducing permit approval times to just days. If one Canadian city can successfully modernize its systems, others should be able to do the same.
The same principle applies to health care. In Greater Victoria, municipal officials are launching a publicly operated clinic to ease the administrative burden on physicians. Many doctors spend as much as 20 per cent of their time on paperwork rather than patient care. By reducing bureaucratic delays, Victoria is creating an environment where health-care professionals can focus on serving patients. This model could be expanded nationwide to improve efficiency in the health-care system. More broadly, provinces should examine whether outdated administrative policies are discouraging new doctors from setting up practices.
Canada must also reduce its overreliance on the U.S. market. It is risky for nearly 80 per cent of exports to depend on a single trade partner—especially one as politically unpredictable as the U.S. The federal government should prioritize securing trade agreements with Europe, Asia and Latin America. Expanding export markets, strengthening supply chains and reducing interprovincial trade barriers should be at the centre of its economic strategy.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) gives Canada access to high-growth economies such as Japan, Malaysia and Vietnam. Yet, Canadian exports to these markets remain relatively small. The government should take a more aggressive approach to promoting trade diversification and supporting businesses in accessing these new opportunities.
Likewise, Canada’s trade agreement with the European Union, the Comprehensive Economic and Trade Agreement (CETA), remains underutilized. While CETA eliminates tariffs on most goods, non-tariff barriers such as differing regulations and standards continue to make exporting difficult for Canadian firms. The federal government should be working with industry to address these challenges and ensure businesses can fully benefit from trade agreements.
Tariffs are creating economic uncertainty, but Canada should use this opportunity to address what is holding it back. Reducing red tape, supporting businesses and diversifying trade will do far more to ensure long-term prosperity than imposing duties on imported U.S. goods. The best way to counter American protectionism is not to mimic it but to make Canada an easier place to do business, invest and trade.
Retaliatory tariffs may provide short-term political optics, but they are not a solution. The only way to ensure Canada is no longer at the mercy of U.S. trade policy is to build a strong, diversified economy. Now is the time to focus on building a competitive and resilient economic future.
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.
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