Just how permanent will Trump’s tariffs be?

The answer to that key question will determine our strategic response

As Canada prepares to respond to President Donald Trump’s tariff threats, we need to pay less attention to what he says and more attention to what he does.

We don’t know when he will impose these tariffs—he’s stated February 1, but he’s also initiated important precursor studies that won’t be done until April 1—though we can be reasonably certain he will impose them at some point. In short, even if we don’t know when, we do know whether.

There is, however, an even more important question for Canada than “whether” Trump will impose tariffs. And that question is “For how long?”

Put another way, are tariffs a negotiating strategy to get Canada to perform certain actions? Or, as The Hub was early to postulate, are tariffs a new revenue source for the president to fund his spending and tax cuts? In other words, are these tariffs likely to be temporary or here to stay?

Canada’s proper policy reaction depends fundamentally on the answer to this question.

If tariffs are a negotiating strategy, then Canada can hit back hard, likely temporarily, while we determine how far we are willing to go to meet Trump’s demands. And Canada can likely entertain some measures that are painful to our economy so long as they are more painful for the U.S. These measures would be designed to hurt, not to last.

However, if tariffs are not a negotiating strategy, if Trump intends to use the significant revenues—I’ve seen estimates as high as $350 billion—to pay for existing and new tax cuts and move the U.S. budget closer to balance, then our response has to be fundamentally different. In short, if tariffs are to stay because Trump wants tariffs to pay, negotiating is pointless and any retaliation has to serve Canada’s long-term interest, not its short-term negotiating strategy.

But how can we know? What signals should guide our response?

As is so often the case, we should ignore what Trump says and pay close attention to what he does.

One of the reasons I believe Trump has delayed the imposition of tariffs is that he and his team haven’t put in place, or designed, a fiscal plan that accounts for that massive influx of new revenues. He hasn’t said how he might use these revenues to cut taxes and balance the budget. So long as this remains the case, indeed so long as Trump puts off imposing tariffs and doesn’t put forward his tax cut and spending plans, we should hope for the best, and assume this is largely a negotiating strategy. We should prepare our hit-back-hard strategy along with a strong negotiating plan on borders and security matters that clearly matter to the president.

However, the minute Trump and his team start musing or proposing—or legislating—massive new tax cuts or spending plans (indeed paying for existing but expiring tax cuts will require massive new deficits and/or revenues), Canada will need to prepare a plan that is much more long-term.

Massive new corporate and personal tax cuts could offset some of the costs to Americans and American businesses of imposing tariffs, and the resulting retaliatory tariffs they surely know would result. Any hint that new tax cuts will be paid for with tariffs or be “revenue neutral” once tariffs are imposed means Canada is in for the long haul. Any response that deals with short-term challenges may not be up to the task of addressing the longer-term challenges of tariffs (and lower U.S. taxes!) that would be here to stay.

Indeed, we should design any short-term measures as temporary (I have proposed eliminating the GST, doubling the GST credit, and designing a wage subsidy for trade-exposed sectors) and phase them out as we substitute measures better designed for tariffs that are here to stay.

And our negotiating strategy should also be alive to the reality that anything we give the U.S. on borders and security will not matter one whit in terms of whether tariffs are lifted. It would be the worst of all worlds if we succumbed to this sort of bait and switch by the U.S. president.

If it is clear that tariffs are a revenue policy and not a negotiating policy, we should be much less willing to negotiate. Instead, we should prepare and develop policy for a world where tariffs on Canadian exports to the United States are the new reality.