As trade tensions rise between China and the United States, Canada is not out of the woods yet, leaving some to wonder if a trade war is inevitable.
On Monday, the U.S. and Canada agreed to pause tariffs for 30 days to negotiate new security measures at the border, but the economic standoff between China and the U.S. continues.
While the temporary reprieve brings a moment of relief for Canadians, uncertainty still lingers, leaving many Canadians questioning whether a trade war is merely delayed.
“President Trump’s crushing 25 per cent tariffs are a complete betrayal of the historic bond between our countries. It is a declaration of economic war against a trusted ally and friend,” British Columbia Premier David Eby said Saturday in response to Trump’s tariff threat.
While trade disputes are nothing new, tit-for-tat exchanges of tariffs and trade restrictions can quickly escalate, creating a complex economic battle with significant ramifications, explained Robert Howse, a professor of international law at New York University.
When the U.S. announced tariffs on Canada on Saturday and Canada hit back with its own plan, it was clear the two countries were “undoubtedly” in a trade war, Howse said.
Here’s what to know about trade wars.
What is a trade war?
A trade war is an economic conflict that erupts when countries engage in a cycle of retaliatory trade measures, like tariffs, leading to escalating restrictions that disrupt markets, raise prices and strain international relations, Howse said.
“By imposing retaliatory measures, that’s really what makes it a war,” he said. “That means Trump puts on tariffs and other countries like Canada react by imposing tariffs on the United States, or another form of punitive trade measure.”
Generally, he said, it is a form of protectionism.
“But it’s a question of whether retaliation is a logical strategy to protect one’s economy,” Howse said.
“The problem with a trade war, the country that put on the original protectionist measures can respond to retaliation by retaliating against the retaliation. And that creates an even worse situation.”
Kevin Hassett, director of the White House National Economic Council, said Monday that it was misleading to characterize the showdown as a trade war despite the planned retaliations and risk of escalation.
“Read the executive order where President Trump was absolutely, 100% clear that this is not a trade war,” Hassett said in an Associated Press report. “This is a drug war.”
However, the executive orders also included wording that specified the tariffs could increase if Canada retaliated in response.
Difference between a trade ‘dispute’ and ‘war’
Trade disputes happen frequently, and are usually temporary disagreements between countries over trade policies, usually involving smaller tariffs or disputes that can be resolved relatively quickly.
“You can have these disputes that have a tit-for-tat character, but are just inherently limited to a particular product,” Howse said.
For example, he pointed to the trade dispute between China and the U.S. on solar panels.
The U.S. and China are currently engaged in a trade dispute concerning solar panels. The U.S. initially imposed tariffs on Chinese solar panels and cells, citing unfair trade practices and concerns about China’s market dominance. China retaliated with tariffs on U.S. goods.
In contrast, Howse said a trade war is a more intense conflict where countries impose escalating tariffs and trade barriers on each other in retaliation, often leading to significant economic disruptions.
History of trade wars
History is filled with examples of trade wars.
One of the more famous ones is the Smoot-Hawley Tariff Act that began in 1930. This was an American law that raised U.S. tariffs on a sweeping range of products being exported to the United States.
The tariffs were widely believed to have worsened the recession during the Great Depression.
The 1960s saw the Chicken War, a trade dispute between the U.S. and Europe primarily over poultry. The conflict arose when the U.S. accused Europe of unfair tariffs on American chicken exports, prompting U.S. retaliation with tariffs on European goods like French wine and German motorcycles.
And then there was the 1980s trade war between the U.S. and Japan.
This trade war happened because of a large trade imbalance, with Japan dominating industries like cars and electronics. In response, the U.S. imposed tariffs and pressured Japan to open its markets, creating the 1985 Plaza Accord, which aimed to reduce the U.S. trade deficit.
When one country takes action against another’s tariffs, politicians in the affected country may gain public support by reflecting the public’s anger or dissatisfaction, Howse noted.
For Canada, Howse said this may be a political gain for the Liberals.
Retaliation like this often feels like an instinctive response, similar to a schoolyard reaction where someone hits back when they perceive an injustice.
“And this is probably the last refuge of the Liberal government. They have fallen enormously in the polls,” he explained.
“This is almost like a political gift … to respond with a patriotic sentiment and to do so in a way that’s very forceful, even if ultimately it’s not going to help the Canadian economy that much.”
As for Trump’s benefit from the trade war, Howse said he’s somewhat puzzled.
There’s little evidence to suggest that the drug and fentanyl crisis is primarily a problem through the Canadian border.
In terms of the disadvantages of a trade war, he said, it’s clear that consumers will be hurt.
“However, the U.S. can tolerate a lot of retaliation, because it’s not largely dependent on the export of goods,” he said. “The question is whether Canada could tolerate an ongoing trade war, given its significant dependency on exports. And I’m doubtful that it would go well for Canada.”
— With files from Global News’ Uday Rana