Tariffs on the table at 'first dinner' between Trump and Trudeau

To justify tariffs, Trump cited a lack of action by Mexican and Canadian authorities to stop drugs and illegal immigrants entering the US. Posting on his own social media site, he added that the tariffs "will remain in effect until such time as drugs, in particular fentanyl, and all illegal aliens stop this invasion of our country".

He said: "Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem. We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!"

Dinner at Mar-a-Lago

On 29 November 2024, Trudeau made an unplanned visit to meet Trump for dinner at his Mar-a-Lago resort in Florida, becoming the first G7 leader to do so since Americans voted. Trudeau travelled with Dominic LeBlanc, the minister responsible for border security, his Chief of Staff Katie Telford, and Deputy Chief of Staff Brian Clow.

With Trump were cabinet nominees Doug Burgum (Interior), Howard Lutnick (Commerce), Mike Waltz (National Security Advisor), and Pennsylvania Senator-elect Dave McCormick. The meal lasted three hours.

According to Bloomberg, Trudeau and Trump discussed defence, NATO, Ukraine, China, and pipeline projects like Keystone XL (which was halted by the Biden administration on environmental grounds), and a joint agreement with Finland to build icebreakers for the Arctic region.

Yet tariffs are the main source of tension between them, and Trudeau knows that Trump is serious. "When Donald Trump makes such statements, he fully intends to act on them," he said. He also knows that the US is Canada's top trading partner, getting three-quarters of its exports, valued at $439.6bn last year, according to the UN's COMTRADE database on international trade. 

Criticism of Trudeau

Pierre Poilievre, Canada's opposition leader, previously said he would oppose Trump's tariffs and has supported more security along the US-Canada border, one that Trump has derided as "open" and "ridiculous". Yet he downplayed concerns that Trump's proposed mass deportations would send migrants into Canada.

Poilievre said he would negotiate ending tariffs on softwood lumber and secure exemptions from the Buy American Act, adding that Canada had suffered from declining investments as capital shifts to the US. "I want our money back," he said.

The Trudeau government said Trump's first term, marked by mutual tariffs on steel and aluminium, proved that Canada should be exempt from such measures, but was criticised for not securing tariff exemptions in CUSMA, including on softwood lumber.

Canada and Mexico say Trump's tariffs would harm everyone, increase inflation, and damage jobs. As America's top external supplier of crude oil, Canadian energy exports to the US topped $122bn last year. A 25% tariff on this would increase US energy costs, said Wilbur Ross, Trump's first Secretary of Commerce, and would not add US jobs.

Flavio Volpe, President of the Canadian Automotive Parts Manufacturers' Association, gave further warnings, saying that the Canadian and American automotive industries are deeply intertwined and operate on very narrow profit margins. 

"The President-elect has done what he's famous for, which is trying to stir the debate. The only surprise is how early he's done it," said Volpe. "What we learned in the first term was that he uses strong rhetoric, public rhetoric, but the negotiations are always tough but reasonable. I'm just telling everybody to be patient."

At the end of November, outgoing President Joe Biden added his voice, criticising Trump's plans for a 25% tariff on imports from Canada and Mexico as "counterproductive". Speaking to reporters, he added: "I hope he reconsiders. The last thing we should do is start ruining these relationships."

Mexico and Europe

Trudeau has not been the only one to reach out to Trump. Mexico's relatively new President Claudia Sheinbaum spoke to Trump on the phone last Wednesday, after which Trump said she had "agreed to halt migration through Mexico and into the US, effectively closing our southern border".

Sheinbaum later said tariffs were not explicitly discussed, the two instead agreeing to work toward "good relations". She also refrained from confirming any specific commitment to halt migrant flows, as Trump claimed, but expressed confidence in avoiding a trade war with the US without elaborating on how this might be achieved. 

She highlighted her government's efforts to combat the consumption of fentanyl, a synthetic drug responsible for thousands of American deaths annually, and said Mexico was managing migrant caravans within its borders, without pledging to stop their flow.

To others' detriment

In the past, Trump's approach has worked, with Christine Lagarde, president of the European Central Bank, famously urging Europe to "buy certain things from the United States," such as liquefied natural gas, defence equipment, and agricultural products, to avoid Trump's trade wars.

Lagarde was candid in warning that a Trump second term would be a "clear threat" to Europe, but Trump is unlikely to change tack: his team sees trade as a tool to enhance American market dominance in a world where trade "partners" are far from equal. The aim is also to draw economic activity away from other states and thus weaken them.

This transactional approach aligns with economist Albert Hirschman's theory in National Power and the Structure of Foreign Trade (1945), which states that "increasing wealth through foreign trade enhances power relative to other nations".

Analysts and markets are waiting to see if Trump follows through, and if so, how Canada responds, specifically whether is feels forced to adapt to Trump's transactional approach or to confront it. A lot depends on the answer.