The outline of a trade deal is becoming clearer.
Canada will likely have to accept new permanent tariffs on at least softwood lumber, steel, aluminum, automobiles and products such as dairy that are protected by supply management. Canada either agrees to this, or faces an even worse situation as the Americans continue to embrace protectionism. Although those new tariffs will likely represent a reduction from those imposed by the Trump Administration on and since Liberation Day on April 2, 2025, they will still hurt.
Could this eventually prove to be a good thing?
Nothing will focus the attention of Canadian business on the need to be more productive than the prospect of poverty. While American businesses stagnate behind new and permanent tariff barriers, those Canadian businesses affected by the tariffs will have to become more efficient. Some will fail. Some will leave the country and relocate behind the American tariff wall. The majority will stay and succeed. In the long run, the Americans may face an even more formidable economic opponent than they face now. Increasing Canadian economic efficiency would also help Canada to compete with the rest of the world as it seeks to diversify its trade.
It's about time.
Canada has been struggling to increase labour productivity for at least a decade and a half, at the cost of tens of billions of dollars of federal and provincial government subsidies. The result is a labour productivity rate that not only didn't improve, it declined. That may be about to change, courtesy an American administration that doesn't understand how the economics of tariffs actually works.
