Canada is yet again on the precipice of economic uncertainty as a result of U.S. President Donald Trump’s global trade war. This time it’s connected to an upcoming decision by the U.S. Supreme Court.
Consider it the tariff version of the devil you know versus the devil you don’t.
The justices are considering whether some of Trump’s tariffs are legal, and whether he overstepped his authority by invoking emergency powers to impose them. If the court rules against the Trump administration, those tariffs could end up being struck down.
The White House appears prepared for that possibility, with several senior officials indicating a backup plan is ready to go, should they lose the case.
And this is where things become particularly complicated for Canada.
While the removal of any tariffs would be a welcome development, the tariffs in question are the ones that have huge exemptions for Canadian goods. And if those tariffs are lifted, and then replaced by different tariffs, there are no guarantees the exemptions will continue.
“What Canadians need to know is that [Trump] has alternatives under U.S. law to impose tariffs at will,” said Eric Miller, a trade consultant who leads the Rideau Potomac Strategy Group.
He says Canada is facing a new “challenge” since Trump will be the one to make any final decisions about granting exemptions.
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What’s at stake for Canada
The Supreme Court is only examining some of Trump’s tariffs: specifically, the ones imposed using the International Emergency Economic Powers Act (IEEPA). It essentially gives the president broad economic powers to address an emergency situation.
Canada and Mexico were both hit by IEEPA tariffs early in Trump’s second term. The president declared security along both the northern and southern borders to be an emergency, citing illegal migration and the flow of fentanyl into the U.S.
Starting March 4, a 25 per cent tariff was applied to all Canadian and Mexican goods. A lower 10 per cent tariff on energy products was also put into place.
But days later, Trump announced there would be significant exemptions. All goods that comply with the Canada-U.S.-Mexico free trade agreement, known as CUSMA, could still flow across the border tariff-free.
“Canada has seen their ability to continue to export duty-free to the United States largely maintained,” said Miller, noting the exemptions have provided stability for a broad range of businesses.
And the exemptions continued when Trump raised the tariff rate against Canada to 35 per cent in August.
Trump also used IEEPA to impose his so-called “Liberation Day” tariffs. The president declared trade deficits to be a national emergency, and used it as the basis to apply country specific tariffs to dozens of U.S. trading partners.
The IEEPA tariffs have since become a significant source of revenue for the Trump administration, generating tens of billions of dollars.
“We’re taking in so much money with the tariffs now, that it’s such a pleasure,” Trump said during an event at the White House earlier this month.
Senior Trump officials have also made it clear they intend to find ways to ensure the money continues to come in, even if IEEPA tariffs are struck down by the Supreme Court.
“I’m under strict instructions from my general counsel not to reveal the backup plan,” said U.S. Trade Representative Jamieson Greer, during a question and answer session hosted by a D.C.-based think-tank.
In the discussion, Greer was asked whether the Trump administration can re-create that revenue using other methods, should it lose at the Supreme Court.
“Yes … short answer, but yes,” Greer said. Though he was quick to add that “tariff revenue is a byproduct of the policy,” and defended the tariffs as a way to reshape trading relationships and reshore American jobs.
It echoes comments previously made by Treasury Secretary Scott Bessent, who spoke with a New York Times journalist in early December about the backup plan.
“We can recreate the exact tariff structure,” he said before listing off a range of options the Trump administration is considering.
You can read a detailed breakdown of those specific tariff options here.
“It is always possible that if the IEPPA tariffs go down, and they put in new tariffs, those could end up being applied to Canada,” Miller said.
“We simply don’t know,” he added.
“But I know that a lot of companies will be pressing very hard for the … exemption to be maintained,” he added.
Trump speaks during a roundtable event to discuss aid for farmers, in the White House on Dec. 8. Trump officials say they intend to find ways to ensure tariff revenue continues. (Andrew Caballero-Reynolds/AFP/Getty Images)
No one should be surprised if Canada is hit by new tariffs, warns Richard Madan, the D.C.-based trade representative for the province of Manitoba.
“We’ve heard the president say many times he loves tariffs,” Madan said, adding that the president has “other tools in his toolbox.”
What’s next?
The Trump administration could target more industries using what’s known as Section 232 of the Trade Expansion Act of 1962.
Canada has already been hit by several of these sector based tariffs, which have been applied to steel, aluminum, the auto sector, copper and wood products.
There are no broad CUSMA exemptions for these tariffs, except for some carveouts related to the auto industry.
This may be a less attractive option for Trump, because a lengthy study must be conducted before the tariffs can actually be applied.
Trump could also impose time-limited country-based tariffs, using what’s known as Section 122 of the Trade Act of 1974.
Tariffs of up to 15 per cent could be imposed, but they could only be in place for up to 150 days.
These are just a few of the options available to the Trump administration, should it need to recalibrate its tariff plan.
“We can expect there will continue to be these kinds of tariffs and barriers being used against Canada if it is something the president has decided is in the U.S. interests,” said Laura Dawson, the executive director of the Future Borders Coalition.
“I think that there is going to be no magic bullet that’s going to turn the Trump administration around,” she said.
But Dawson does see a glimmer of hope in this moment. If Trump is found to have overstepped his authority, it will reaffirm the role of Congress when it comes to developing trade policy.
She says that’s key for Canada — since members of Congress generally have a better understanding of how important the Canada-U.S. trading relationship is, and can see the impact of tariffs directly in their own communities.
“So the more that authority is returned to Congress, the more that those local trading interests that Canada is so intimately tied up with, I hope will be more on the surface.”
Whatever happens next, Canadians should brace for more uncertainty, trade consultant Miller warns.
“One would think that Donald Trump, if he loses the case … that he would say, ‘OK, we accept the court’s ruling, we’re going to refund all the money and there’ll be zero tariffs,'” Miller said.
“But that’s not how Donald Trump works.”
