The Indicator from Planet Money: Canada’s Key Resource Against Trump’s Potential Trade War

Released on January 30, 2025

In this episode of The Indicator from Planet Money, NPR delves into the escalating tensions between the United States and Canada as President Donald Trump threatens to impose a 25% tariff on imports from his two largest trading partners: Canada and Mexico. Hosted by Adrian, the episode features an insightful conversation with Paul Haverschrud, a business reporter and host of CBC’s Cost of Living podcast. Haverschrud provides an in-depth analysis of the potential economic fallout for Canada and explores the strategic responses Canadian officials are considering to mitigate the impact of a possible trade war.

The Weight of the Tariff Threat

Adrian opens the discussion by highlighting the gravity of Trump’s tariff threat, stating, “President Donald Trump is threatening to place a 25% tariff on imports from its two biggest trading partners, Canada and Mexico. These tariffs could go into effect as soon as Saturday” (00:12). This immediate threat sets the stage for understanding the urgent economic implications for Canada.

Paul Haverschrud underscores the significance of this move for the Canadian economy, emphasizing that “exports make up nearly a third of our economy. For the US, I think exports make up around like, 10%, maybe less” (02:44). This stark contrast illustrates how heavily Canada relies on trade, particularly with the United States, making the potential tariffs a substantial risk.

Potential Economic Impact on Canada

Haverschrud elaborates on the possible consequences, noting, “If we take that at face value, like three quarters of our trade goes south to the U.S. we get a 25% tariff, we're looking at a recession in Canada, maybe a pretty sharp recession” (03:07). He highlights that key sectors such as energy, automobiles, agriculture, and mining would be severely affected, leading to job losses and economic hardship for Canadian citizens.

Navigating the USMCA and Legal Loopholes

The conversation shifts to the existing trade agreements, specifically the United States-Mexico-Canada Agreement (USMCA). Haverschrud points out, “Yes, we do have a trade deal, but if you put a 25% tariff on us, then do we really have a trade deal?” (03:57). He suggests that Trump might exploit loopholes within the Trade Act of 1974 or the International Emergency Powers Act to justify the tariffs under the guise of national security, drawing parallels to the 2018 steel and aluminum tariffs.

Canada’s Countermeasures and the Risk of a Trade War

Adrian and Haverschrud discuss the possibility of retaliatory tariffs from Canada. Haverschrud explains, “We’d be coming after things like Florida oranges, Kentucky bourbon. They say, no one wins a trade war, but we don’t want to be in a trade war” (04:38). This tit-for-tat approach could escalate tensions, potentially spiraling into a full-blown trade war that neither country desires.

Oil Exports: Canada’s Strategic Leverage

A significant portion of the discussion centers on Canada’s oil exports as a critical lever against the US tariffs. Haverschrud details, “We export about 4 million barrels of oil a day to you. So that’s nearly one out of every four barrels that you refine comes from Canada” (05:09). He outlines potential strategies Canada might employ, such as restricting oil exports or imposing export tariffs, which could disrupt gasoline prices in the US Midwest—regions pivotal to swing states like Michigan and Wisconsin.

Challenges with US Oil Production and Refinery Compatibility

Adrian raises the question of whether increased US oil drilling could offset the impact of Canadian export restrictions. Haverschrud responds, “The refineries in the Midwest … they’re designed to take heavy oil from Canada” (07:45). He explains that even if the US increases its oil production, compatibility issues with refinery infrastructure mean that US-sourced oil might not seamlessly replace Canadian heavy crude, limiting the effectiveness of this potential mitigation.

Opportunity for Economic Diversification

Amidst the looming crisis, Haverschrud sees a silver lining: “This is an opportunity to sort of rethink the Canadian economy” (08:21). He discusses ongoing debates within Canada about diversifying the economy to reduce dependency on US trade. Suggestions include expanding pipeline projects to Asia, dismantling interprovincial trade barriers, reforming supply management systems, and lowering corporate taxes to attract international businesses. These measures aim to build a more resilient and diversified economic foundation for Canada.

Closing Thoughts: Avoiding Conflict and Fostering Cooperation

In his concluding remarks, Haverschrud urges against the escalation of trade tensions, stating, “We don’t want a trade war, Adrian” (09:39). He emphasizes the strong cultural and economic ties between Canada and the US, highlighting mutual affinities and shared interests. Haverschrud’s final sentiment reinforces the desire for amicable resolutions and continued collaboration between the neighboring nations.

Conclusion

This episode of The Indicator provides a comprehensive overview of the potential economic challenges Canada faces in the wake of President Trump’s tariff threats. Through expert analysis and strategic insights from Paul Haverschrud, listeners gain a clear understanding of the complexities involved in international trade disputes and the critical importance of diversification and resilience in national economies. As the situation unfolds, the episode underscores the delicate balance between safeguarding economic interests and maintaining harmonious international relations.

Notable Quotes:

• Adrian [00:12]: "President Donald Trump is threatening to place a 25% tariff on imports from its two biggest trading partners, Canada and Mexico."

• Paul Haverschrud [02:44]: "Exports make up nearly a third of our economy. For the US, I think exports make up around like, 10%, maybe less."

• Paul Haverschrud [03:07]: "We're looking at a recession in Canada, maybe a pretty sharp recession."

• Paul Haverschrud [03:57]: "If you put a 25% tariff on us, then do we really have a trade deal?"

• Paul Haverschrud [04:38]: "We’d be coming after things like Florida oranges, Kentucky bourbon."

• Paul Haverschrud [05:09]: "We export about 4 million barrels of oil a day to you. So that’s nearly one out of every four barrels that you refine comes from Canada."

• Paul Haverschrud [07:45]: "The refineries in the Midwest … they’re designed to take heavy oil from Canada."

• Paul Haverschrud [08:21]: "This is an opportunity to sort of rethink the Canadian economy."

• Paul Haverschrud [09:39]: "We don’t want a trade war, Adrian."

This summary was produced based on the transcript of "Canada's key resource against Trump's potential trade war" from The Indicator from Planet Money. For more insightful analyses on economic and business topics, tune in to the podcast weekday afternoons.