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Between the time you read this article and the time it was published, the situation may have completely changed. This is how things go under President Trump, who frequently uses threats, bluffs and unpredictability as political and economic weapons.  

We saw this at the beginning of February when the 25% tariffs targeting Canada and Mexico were announced with great fanfare, confirmed as inevitable, then suspended for 30 days before reappearing in the form of global tariffs targeting steel and aluminum, the duration and conditions of which are unknown, or even if they would be added to other potential tariffs.  

In addition to these actions (and without even mentioning the potential absorption of Canada as the 51st state) the American president also mentioned other issues which could pose serious threats to the Canadian and Quebec economies, such as eliminating supply management in the agricultural sector, significantly increasing military spending, liberalizing the Canadian banking sector, increasing the price of medicines, increasing US access to our natural resources, repatriating automobile supply chains to the US, etc. If one or more of these threats materialize, the impacts could be major for our economy and our public finances.  

The bluff theory

Faced with this avalanche of news and surprises, some are calling for calm. They recall the many times Donald Trump has backed down and changed his mind in the past, and they urge their fellow citizens not to exaggerate the seriousness of his antics. According to these observers – who, it must be said, are becoming fewer and fewer – the benefits of free trade and the dangers of a tariff war (especially the risks of inflation and of a stock market crash in the United States) will certainly cool President Trump's protectionist impulses. It follows that there is no reason to be overly concerned, nor to make significant adjustments in response to threats that will disappear sooner rather than later.  

It is indeed possible that, after a few weeks of turbulence, trade relations between Canada and the United States will return to normal, with the promise of a renegotiation of CUSMA in the coming years. This would undoubtedly be the best possible result.

The danger of false security

For Canadian and Quebec businesses, however, the strategy of waiting and sticking to the status quo seems misguided. If Donald Trump's inconsistency and improvisation allow us to hope for a happy outcome, the American president's frequent about-faces can also induce a feeling of false security. Our clients are not in panic mode, but several have shared their concerns with us. Some are delaying contracts or purchases in the US, confused about the responses of our governments and unsure about the longer-term perspective. Everyone wants the crisis to resolve smoothly, but this may not happen. And it is important to prepare accordingly, in part by asking yourself essential questions:  

• How can the evolution of American policies threaten your business model?  

• How to communicate with your stakeholders in these circumstances?  

• How can you ensure that public decision-makers take the challenges of your industry into account in their rescue or recovery plans?  

Two elements in particular – the first economic, the other political – suggest that US tariff threats must be taken seriously.  

Disproportionate impacts for Canada

First, economic reality. The American economy is thirteen times larger than the Canadian economy, and much more diversified. Canadian exports to the United States represent 20% of our GDP, while American exports to Canada represent less than 2% of US GDP. Even if Quebec and Canada respond to Trump in a way that inflicts equal economic harm on our neighbors – an eye for an eye, a tooth for a tooth, a tariff for a tariff – the impact on the American economy will be minimal. Some industries and businesses will be more affected than others but, overall, the effects could be negligible – especially since the US government will certainly deploy economic support measures to sectors affected by Canadian counter-tariffs.  

But doesn’t the United States depend on Canada’s oil, gas, and electricity? It is true that Americans consume a lot of energy from Canada and that a sudden interruption of pipelines and transmission lines would have significant consequences on several regions and industries in the US. But the Americans are not fundamentally dependent on Canada. In reality, for several years, the United States has been an energy superpower, both for the production and export of fossil fuels and in the development of renewable sources. If they want to and are prepared to make the required adjustments and investments, Americans have the capacity to be energy self-sufficient. This means that, in the medium and long term, even the energy levers of Quebec and Canada will be no match for a United States determined to win a war of economic attrition.  

None of this means that Canada and Québec should not forcefully respond to US tariffs using every tool at their disposal. But we should be clear-eyed about the overall context and balance of power.  

Political momentum in the US

There are also indications that President Trump’s tariff threats rest on significant political foundations.  

Under Donald Trump, the Republican Party has transformed itself into an outright promoter of economic nationalism and a staunch critic of globalization and free trade. For strategic and economic reasons, the Trump administration is determined to make the US more independent and repatriate production chains domestically, even if prices increase for American consumers.  

These policies find support among American unions. Several Republican strategists and officeholders also support these positions, citing the ravages of deindustrialization on the social fabric of certain regions of the country. A few years ago, Senator Marco Rubio (now Secretary of State) argued that “the quest for profit goes too far when businesses desert the workers and communities that made them profitable in the first place simply to make goods more cheaply in other countries.”

These remarks suggest that parts of the Republican base no longer prioritize free markets, economic efficiency and low prices before all other social or political considerations. Ironically, former Prime Minister of Canada Stephen Harper recently made similar comments in affirming that he would be willing to endure “any degree of economic damage” to defend Canadian independence.

Finally, a 2024 study suggested that President Trump had not suffered politically from the tariff wars waged during his first term. Even though these tariffs did not have the desired impact and caused economic harm to certain regions of the US, political support for Trump increased. If history repeats itself, we should not expect American voters to revolt against the protectionist policies of their president.  

What should you do?

There is no one-size-fits-all solution to respond to these threats. The looming uncertainty only adds to the complexity of the challenge. One thing seems obvious, however: inaction is not an option.

This is the message that François Legault has been repeating for weeks. The Prime Minister is predicting years of profound transformations for the Quebec economy. It is imperative that Quebec and Canadian businesses take stock of the change and quickly adapt their operations accordingly.  

Some actions are under the exclusive responsibility of companies, such as repositioning, exploration of new markets and strategic communications. That said, considering that the Quebec economy has historically involved strong collaboration between the public and private sectors, it is likely that this relationship will be more essential than ever. In many cases, companies will also have to integrate a government relations component into their strategic thinking, to ensure that their industry, their business model, and their specific issues are understood and considered by governments, even as they seek to redeploy our economy at full speed. This is the rare occasion where the agility of companies could depend in part on their ability to coordinate their actions with public authorities.

Whether you choose to engage in strategic reflections, communicate with your stakeholders, reposition and increase the visibility of your business, or if you need advice on your government relations, our experts can help your organization navigate this complex landscape.

We offer a free initial consultation to organizations affected by tariffs. Contact us to learn more.

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