The Politics of Tariffs

Gilbert Gagné

This is the third post in a series on tariffs based on a roundtable organized at Bishop’s University in February 2025. Read the introduction by David Webster here and the first post by Heather McKeen-Edwards here. The second post by Gordon S. Baker appears here.

Everything seems to be about tariffs now; how exposed to potential US tariffs Canada is, and some of the implications and essential issues surrounding this. In terms of history, as Gordon Barker points out in the first post in this series, it used to be the norm that most industrial countries industrialized behind tariffs, and they were more sympathetic to trade liberalization once they felt they were ready to face outside competition. And as Heather McKeen-Edwards has very clearly pointed out, especially following the crash of 1929, increasing tariffs made the crisis even worse. There are calls to immediately renegotiate the free trade agreement with the United States. Yet, with a US administration disregarding the Canada-United States-Mexico Agreement (CUSMA) with threats of tariffs, this would make no sense.

Post-Second World War, the idea, already present in the interwar years, to provide for a liberal economic order, was much emphasized by the United States. Through the establishment of the General Agreement on Tariffs and Trade (GATT), successive rounds of multilateral trade negotiations gradually lowered tariffs to an almost negligible level overall among industrial countries by the end of the 1980s. That means that, with a few exceptions, tariffs were already quite low overall between Canada and the US when the Canada-US Free Trade Agreement (FTA) was concluded. 

All of this to say that tariffs had for a long time not been the main issue in trade negotiations and in free trade negotiations between industrial countries. So the threat from President Trump, to impose tariffs across the board of at least  25% against Canada and Mexico, brings the world and North America back some six decades. Why does the US President make such a threat, which could be equated with an act of war? Obviously, for political gains, political gains for himself. “American First” is me, myself, and I. If you want to convince Americans and gain voters, you claim it is for America first, to “make America great again.”

In the first Trump administration, the President threatened to either break or renegotiate the North American Free Trade Agreement (NAFTA). As we know, the Canada-US FTA had become NAFTA, with Mexico on board as well. The new deal, the CUSMA, was renegotiated with a largely protectionist administration, which was odd. Still, it made sense, in a way, to renegotiate NAFTA because it was considered so fundamental for Canada, 75% of our exports go to the United States. We are so dependent on the United States. 

Within CUSMA, there was for the first time in a trade agreement, a clause known as the sunset clause. It provides that after six years following the entry into force of the treaty, it would be subject to either review or renegotiation, which for Canada and Mexico, means the possibility for the United States to reopen the agreement and obtain further concessions. The United States first asked for a CUSMA that would have been in effect for only five years. Of course, Mexico and Canada said no. Free trade agreements are signed in order to provide for certainty, so that investors and producers know that they have free access to another market following mutual concessions among sovereign countries. But in the end, Canada  had to agree with the Trump administration. It was agreed that after six years, in case of no agreement to renew it, the CUSMA would still be in effect for 10 years, precisely to reassure investors and provide for some level of certainty. 

Some people argue that, with the threat of tariffs, perhaps we should start renewing the CUSMA right away. I think this is foolish. In 2020 when the CUSMA came into effect, after negotiations that ended in 2018, Canada made significant concessions. So did Mexico, with the aim to have certainty that the agreement was going to be respected. If you have 25% across the board tariffs, the whole agreement disappears. It would be absolutely useless to renegotiate CUSMA with the Trump administration under such conditions, because you would simply make further concessions while the US could return anytime with further threats. 

In Canada, this thought is very discomforting. In Realist theory, countries should try to minimize their vulnerability to other sovereign states. This is something it seems Canada had overlooked. The country is much too highly dependent on the United States. Gordon Barker mentioned that tariffs allowed the United States convince Hawa’ii to be willingly annexed. I think the same applies to the threat to use economic force to annex Canada. That is what President Trump is saying. In his view, Canadians would suffer so much with an across-the-board high tariff that they would see that there is no other option than annexation to the United States. 

Under CUSMA, if you are an investor, where would you invest? Of course, the main market is by far the US market. If you are uncertain if Mexico or Canada will continue to have access to that market, investment is most likely to go to the United States. It contradicts the very rationale of a free trade agreement, but from a protectionist point of view, it serves the Trump administration’s goal. 

While the US is also dependent on Canada, up to a point, all of my colleagues are dismayed by how far this tariff war could go. Remember that Donald Trump is unpredictable. What we see is the raw exercise of power in an arbitrary, non-predictable way. This is precisely what he likes, and this is exactly why Canada has long tried to be an active member of international organizations to ensure as much as possible the rule of law in international relations. 

It is true that until recently, the United States was a benevolent hegemon. Normally, it has respected its treaties and treated its allies well. With “America First” and “Make America great again,” we now see the United States acting as a bully. Ever since Trump has threatened to force Canada into annexation, few countries have come to the rhetorical rescue of Canada. We haven’t got enough allies, because Canada had by the turn of the century neglected its relations with the rest of the world. 

When there were American tariffs on Canadian aluminum and steel in the first Trump administration, the coalition representing Canadian producers argued that we are so integrated that there would be enough pressure from within the US for these tariffs to be abolished. But that was not the case at all. There was not much evidence that there was pressure.

To finish on a more cheerful note, there are no big issues, objectively speaking, between Canada and the US. The Trump administration knows that very well. The big enemy for the US is rising China. We might hope for some relief when the Trump administration squarely turns its attention to China. Meanwhile, renegotiating CUSMA while tariffs are in place is self-defeating. 

Gilbert Gagné is Professor in the Department of Politics and International Studies at Bishop’s University, Sherbrooke, Quebec, Canada. His teaching relates principally to international diplomacy and organizations, Canadian foreign policy and Canadian-American relations. His research pertains mainly to the treatment of cultural products in trade agreements; subsidies and trade dispute settlement, with a particular emphasis on the Canada-U.S. softwood lumber dispute; as well as the protection of foreign investment and investor-state dispute settlement.