(Bloomberg) -- Canadian Finance Minister Chrystia Freeland was wrapping up a meeting of a special cabinet group on US relations on Monday evening in Ottawa when a fresh crisis emerged: Donald Trump made a tariff threat on social media.
Soon after, Justin Trudeau was on the phone with Trump. The Canadian dollar was sinking — it hit a four-year low — in response to Trump’s post that he would impose 25% tariffs on all goods coming from Canada and Mexico unless those countries curb the flow of fentanyl and migrants into the US.
The prime minister was trying to assure the president-elect he’d heard the message.
“We talked about some of the challenges that we can work on together. It was a good call,” Trudeau told reporters on Tuesday on his way into a cabinet meeting where Trump was again high on the agenda. “This is something that we can do — laying out the facts, moving forward in constructive ways.”
The imminent return of Trump has upended Canadian politics and business, with most of the focus now turning to his plans to stifle trade in the region soon after he’s inaugurated in January.
Trudeau re-established the special cabinet committee on Nov. 7 and stocked it with his most important ministers, led by Freeland and Dominic LeBlanc, a trusted ally who’s in charge of border security.
Canada and Mexico are the two economies most at risk from a broader trade war. And while encounters by US officials at America’s northern border have risen, problems there are of a different scale than those at the southern border. Encounters at the US-Canadian border totaled 198,929 during the fiscal year ended Sept. 30, compared with more than 2.1 million at the US-Mexico border, according to data from US Customs and Border Protection.
Mexico’s early reaction to Trump’s pronouncement struck a notable contrast with Canada’s, with President Claudia Sheinbaum suggesting her country could respond with tariffs of its own.
Still, Canada is not ruling out that option either. Freeland, speaking to reporters Tuesday afternoon, pointed out her government responded dollar-for-dollar when Trump imposed tariffs on Canadian steel and aluminum during his first term.
“The important thing is we got through it, and our response was successful,” Freeland said. “The reason we were able to do that is we were smart, we were united, we were strong. At the end of the day, the economic relationship between our two countries is balanced and mutually beneficial, and that is what drove us to a positive outcome.”
The largest numbers of encounters at the northern border in October were reported by the Buffalo, Seattle, Boston and Detroit offices, as well as stations in the so-called Swanton Sector, which covers the US-Canada border in New York, Vermont and New Hampshire according to CBP data.
Marc Miller, Canada’s immigration minister, said the government has been considering a number of measures, “and this absolutely includes additional resources” for police who patrol border areas.
“We have shared interests in here in making it something that is manageable and controlled — and those that are not authorized to cross the border are promptly returned,” Miller said.
In the meantime, Trudeau has called a meeting of the country’s provincial leaders for Wednesday to discuss how to handle the incoming Trump administration. The country’s two largest provinces are most exposed: Ontario, the auto-manufacturing hub, and Quebec, a powerhouse of the aluminum and aerospace industries, represent more than half of gross domestic product.
Trump’s tariff comments have stirred some outrage — “This is no way to treat your closest ally,” Ontario Premier Doug Ford said Tuesday — but also a sense that it’s a negotiating position from a famously transactional president-elect.
William Pellerin, an international trade lawyer and partner at McMillan LLP in Ottawa, said he was stunned by Trump’s announcement on Monday night. But while he interprets the threat as real, it’s also one that can be resolved through improved border security.
“I think that’s what Trump has always done quite well, is impose the tariff and have everyone come hat in hand begging for their exclusion from the tariff,” Pellerin said. “Absolutely, there should be a way here to give Trump a win, save face, and not have that 25% tariff apply.”
--With assistance from Randy Thanthong-Knight.
(Adds comments from Freeland on retaliation in ninth and 10th paragraphs.)
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