Update to our December 3rd Article titled:
Navigating Uncertainty: How Families Can Prepare for a New Paradigm for Canada-US Relations
Written by: Colin Deeks
Published: January 29, 2025
January 20th has come and gone, and thus far, Canada has narrowly avoided a 20% tariff on goods exported to the US, with the deadline now extended to February 1st for now. However, Canada’s response has been far from unified, and the ‘Team Canada’ approach shows limited signs of taking shape. Prime Minister Justin Trudeau has all but abdicated his leadership responsibilities, while Doug Ford’s combative approach has faced resistance across provinces. Alberta Premier Danielle Smith, on the other hand, advocates for diplomacy rather than confrontation, warming up to Donald Trump at Mar-a-Lago despite criticism from her provincial counterparts.
At the federal level, the Liberal Party’s stance is unclear, with various strategies being considered by pseudo-leaders of the party. Foreign Affairs Minister Mélanie Joly has suggested strengthening trade ties with non-US allies, including Europe and the UK, while Liberal leadership hopeful Chrystia Freeland has proposed retaliatory tariffs on US goods to the tune of $200 billion and advocated for clear communications of this threat. Whether this is based on her past experience in leading trade negotiations with the US in the first Trump administration or a move to solidify her political base to support her leadership campaign remains uncertain.
Two key concerns arise from these approaches. First, a multibillion-dollar pandemic bailout for businesses and workers impacted by tariffs would exacerbate Canada’s already high deficit. Although it may be necessary in the short term to save the economy, it could also trigger inflation and place additional pressure on the Canadian dollar, especially without a clear economic growth plan from the Liberals to balance the increased spending.
Second, Canada must avoid the recent path taken by Colombia, where a direct immigration dispute with Trump led to major concessions after threats of tariffs and travel bans for its citizens. Such an aggressive approach would risk further reputational and economic damage for Canada and further escalate tensions with the US and Trump, in particular.
In light of these challenges, clients often ask how best to prepare for potential tariffs and the outlook for the Canadian dollar. The answer lies in diversification—avoiding heavy concentration in vulnerable sectors that will face the most immediate threats from tariffs (like energy, automotive, and agriculture) and holding USD reserves to weather potential short-term shocks to the CAD are both sensible approaches that we often discuss with clients.
As Canada navigates these uncertain times, finding a balanced approach that avoids unnecessary confrontation and focuses on long-term stability and joint prosperity is crucial.
May we hope that cooler heads prevail and we get back to codifying and pursuing a policy of joint prosperity in whatever form that may take.