JAY GOLDBERG: Counter-tariffs don’t work – just look at history

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This week, the Carney government imposed nearly $30 billion in counter-tariffs on goods coming into Canada from the United States in response to tariffs imposed by the Trump administration on Canadian goods entering the U.S. last month.

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This represents yet another escalation in the trade conflict between Canada and the U.S. More importantly, it represents higher costs for consumers both north and south of the border.

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Despite what politicians like U.S. President Donald Trump have claimed, tariffs are taxes on domestic citizens. When Trump imposed tariffs on Canadian goods entering the U.S., he raised taxes on Americans. And when Prime Minister Mark Carney imposed tariffs on U.S. goods entering Canada as a response earlier this week, he raised taxes, and prices, for Canadians.

Counter-tariffs counter productive

Some have tried to justify imposing tariffs on American goods by suggesting they are a tool to change behaviour. The hope in these quarters is that the Trump administration might cave and cut a deal to remove tariffs on both sides if Trump sees the government of Canada is willing to engage in his tariff war.

Not only would this be completely out of character for Trump, but history also demonstrates that counter-tariffs don’t produce this kind of an outcome.

One needs only to look back at a trade conflict between Canada and the U.S. nearly 100 years ago to see evidence of this reality. The U.S. Congress passed the Smoot-Hawley tariff back in 1929, which President Herbert Hoover signed into law in 1930. Both Prime Minister Mackenzie King and Opposition Leader R.B. Bennett threatened retaliation.

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King imposed some retaliatory tariffs, but when Bennett beat King in the 1930 election, he escalated the trade conflict, imposing much steeper retaliatory tariffs that accounted for roughly 30% of U.S. exports to Canada.

All these counter-tariffs did was worsen the Great Depression in Canada. As research from the Montreal Economic Institute notes, counter-tariffs had no impact on U.S. policy and only when U.S. administrations changed was the Canadian government actually able to negotiate an agreement to lower tariffs.

But Canadians paid the price. For five years, Canadian consumers endured the cost of higher prices due to tariffs, with no change in U.S. government policy until after pro-free trade forces retook power in the U.S.

Fast forward to today. Are Canadians really prepared to deal with higher prices for at least the next two-and-a-half years, while Trump is still in office, simply because there’s a desire to hit back at Trump over his protectionism? And is there any guarantee the next administration will be a pro-free trade administration that will look to remove Trump’s tariffs on Canada?

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Better plan of action

The response to U.S. protectionism should not be Canadian protectionism. As the MEI has suggested, unilateral free trade is the best course of action for Canada.

So, too, is a plan to build and build quickly: pipelines, ports, major infrastructure projects – all of these need to be sped up in short order. Canada has enormous economic potential, and U.S. trade protectionism should be waking Canadians up to the fact that the economy relies too heavily on trade with the U.S. and that Canada needs the infrastructure capacity to trade more with others.

Canada can’t afford to sit around and try to outlast Trump with retaliatory tariffs and tens of billions of dollars of government subsidies, paid for ultimately by taxpayers. Instead, Canadians should be demanding the government act to strengthen and diversify the economy and tear down, rather than build up, trade barriers.

History shows us counter-tariffs don’t work. Trump’s behaviour and personality suggest exactly the same thing. Instead of shooting ourselves in the foot, it’s time for Canada and Canadians to tear down trade barriers and chart our own course.

Jay Goldberg is the North American Affairs Manager at the Consumer Choice Center

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