Tariffs: a better response to U.S. tariff threats would be to drop Canada’s trade barriers with the whole world, says the MEI
Montreal, March 3, 2025 – Unilateral reduction of all barriers to trade with the rest of the world would strengthen Canada’s economy in the context of the U.S. tariff threats, recommends the MEI in a Viewpoint published this morning.
“As tempting as it may be to respond to tariffs with more tariffs, that would risk making our processors and retailers less competitive and impoverishing our consumers,” explains Vincent Geloso, senior economist at the MEI and author of the publication. “To protect the Canadian economy from the impact of U.S. tariffs, our best bet is to eliminate our trade barriers with the rest of the world.”
This past January, U.S. President Donald Trump announced the imposition of 25 per cent tariffs on virtually all Canadian products. Then he suspended the tariffs for 30 days. This suspension expires on March 4th.
Ottawa reacted to this by proposing its own retaliatory tariffs against $155 billion worth of U.S. imports, to be implemented in two phases.
In international trade rankings, Canada makes out very well, coming in with the 4th lowest level of tariffs out of 88 countries surveyed, while the United States ranks only 24th.
In contrast, however, for non-tariff barriers Canada ranks only 47th in the world. Though still considerably ahead of the United States (88th), Canada’s non-tariff barriers hinder the free flow of goods.
“Whether it’s a tariff or a regulation designed to hinder trade, the effect remains the same,” Geloso explains. “It makes these products more expensive for both our consumers and our processors, and it reduces our ability to take advantage of the specialization that trade allows.”
“Imposing a tariff in retaliation would have a similar effect and would be felt particularly by less affluent households, who can’t always afford to pay more for fruits and vegetables, for example.”
A series of economic studies have indicated that a unilateral reduction in trade barriers is particularly beneficial for smaller economies, such as Canada.
In a 2016 study commissioned by the Business Council of Canada, it was estimated that a unilateral removal of barriers to international trade would boost Canadian GDP by 1.67 per cent, and lead to a 1.51 per cent reduction in the general price level.
Unilateral reductions in international trade barriers are far from unprecedented.
Over the period from 1983 to 2003, an estimated two-thirds of all tariff reductions were attributable to unilateral action. Australia, in particular, reduced its manufacturing tariffs over this span.
Just last year, Switzerland abolished import taxes on industrial products, regardless of their country of origin.
“Protectionist policies are not the way to protect the gains we reap from free trade,” explains Mr. Geloso. “And if we really want to reduce our dependence on American products, the best method is to open the door to their competitors from all over the world.”
This MEI Viewpoint is available here.
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The MEI is an independent public policy think tank with offices in Montreal, Ottawa, and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.
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