Canadian FM warns US tariffs pose 'existential threat'
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The proposed 25% tariffs, originally announced by President Donald Trump on January 31, 2025, were set to take effect on February 4 but have been delayed for a month following negotiations.
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Canada's Foreign Minister Melanie Joly attends a news conference with Secretary of State Antony Blinken, Friday, Sept. 30, 2022, at the State Department in Washington. (AP)
Canadian Foreign Minister Mélanie Joly has voiced deep concerns over the possibility of US-imposed tariffs on Canadian goods, warning that such measures could have severe consequences for Canada's economy. Speaking at the Munich Security Conference on Saturday, Joly described the potential tariffs as an "existential threat" to Canada, despite Washington's decision to temporarily pause their implementation.
"There is an interdependence between the US and Canada but when we hear 25% tariffs, it's an existential threat, because this would account on hundreds of thousands of jobs in Canada being lost and higher unemployment rate coming from our best friend and best ally," Joly stated.
The proposed 25% tariffs, originally announced by President Donald Trump on January 31, 2025, were set to take effect on February 4 but have been delayed for a month following negotiations. In exchange for the postponement, Canada agreed to appoint a "fentanyl czar" and enhance border security efforts, key issues for the Trump administration.
Joly touched on Canada's heavy dependence on trade with the US, explaining that such tariffs would not only devastate Canadian industries but also lead to significant job losses. Economic analysts estimate that hundreds of thousands of jobs could be affected, particularly in sectors that rely heavily on exports to the US.
While the Trump administration has delayed the tariffs, Joly warned that the pause does not guarantee a reversal, and Canada must prepare for potential long-term economic consequences.
Read more: Canada warns Trump tariffs could leave US reliant on Venezuela oil: FT
As concerns mount, Ottawa has not remained idle. In response to Washington's move, Canada announced a CA$155 billion tariff package targeting US imports. The first phase, effective February 4, imposed 25% tariffs on CA$30 billion worth of US goods, with an additional CA$125 billion in retaliatory tariffs planned pending public consultation.
Prime Minister Justin Trudeau has also raised concerns, warning that protectionist measures could backfire on the US as well, citing historical precedents where tariffs led to American job losses. He warned that such policies could harm both economies and disrupt deeply integrated supply chains between the two nations.
How the trade war could expand beyond tariffs
On Thursday, the Washington Post published an analysis explaining how the US-Canada trade war could escalate beyond tariffs, potentially impacting financial markets, US debt stability, and the global dominance of the US dollar.
The article argued that economic conflicts are not confined to trade barriers alone. Just as military tensions can spill over into multiple theaters, a trade war could expand into financial retaliation from affected nations.
One of the most significant risks discussed in the report is the potential for foreign governments to sell off US debt in response to protectionist trade policies. As of November 2024, foreign investors held $8.6 trillion in US Treasury securities, accounting for more than one-third of US debt owned by investors. Among the largest holders are Japan ($1.1 trillion), the United Kingdom ($770 billion), and China ($770 billion).
If just 10% of US foreign-owned debt were dumped onto global markets, the US would need to find buyers for $860 billion in Treasury securities, a staggering figure that amounts to nearly half of the $2 trillion federal deficit in 2024. Such a move could cause interest rates to skyrocket, making borrowing far more expensive for the US government and creating turmoil in financial markets.
Read more: Trump's 25% tariff on steel, aluminum stirs reprisal in Europe, Canada
Beyond debt, the analysis also warned of a longer-term threat to US economic dominance: the de-dollarization of global trade. The US dollar currently accounts for over half of international trade transactions and 64% of global debt—a 15% increase since 2010. However, key US trading partners, including China, Brazil, Argentina, and Saudi Arabia, have actively pursued alternatives to the dollar, shifting some transactions to the Chinese yuan through bilateral trade agreements.
China, for instance, inked a $7 billion currency swap deal with Saudi Arabia in 2023, raising speculation that Riyadh could eventually price some oil sales in yuan instead of US dollars. Such a shift, if widely adopted, would diminish the dollar’s global influence, raise borrowing costs for Washington, and weaken US leverage in international finance.
These risks, according to the Washington Post, illustrate that the US trade war with Canada and other nations is not just about tariffs—it has the potential to shake the foundations of the global financial system.
