In a recent testimony before the U.S. Senate banking committee, U.S. Treasury Secretary Scott Bessent firmly stated that the Trump administration would not eliminate tariffs on Canadian goods, even if Canada reciprocated by removing its tariffs on American products. This position stems from concerns over Canada’s recent trade agreement with China, particularly regarding the influx of Chinese-made electric vehicles into the North American market.
Tariff Strategy Under Fire
During the hearing, Republican Senator John Kennedy from Louisiana questioned Bessent about the rationale behind the administration’s current tariff strategy. Kennedy suggested that the primary aim of these tariffs is to prevent other nations from exploiting trade barriers. He posed a hypothetical scenario where Canada might eliminate its tariffs entirely, asking Bessent if that would lead the U.S. to do the same. Bessent’s response was unequivocal: “Absolutely not.”
He highlighted a recent development where Canadian Prime Minister Carney reduced tariffs on Chinese electric vehicles from 100 per cent to just 6 per cent, which raised alarms in the U.S. about potential Chinese vehicles entering the American market via Canada. Bessent explained, “We couldn’t let our northern border be used as a way for Chinese EVs to come into the U.S.”
Growing Concerns Over Trade Relations
This contentious issue has been further complicated by the recent deal struck by Canada, which allows up to 49,000 Chinese-made electric vehicles to be sold in the country at significantly reduced tariffs. In return, China has agreed to lift certain tariffs on Canadian agricultural products. However, this has sparked fears within the Trump administration that such agreements could grant China greater access to the North American automotive sector.
President Trump, who once viewed a Canada-China trade deal positively, has since expressed strong disapproval, warning that China “will eat Canada alive.” He has even threatened to impose 100 per cent tariffs on Canadian goods should Ottawa pursue closer trade ties with China, a claim Carney has refuted.
Impact on Tourism and Trade
While Canada maintains that most Canadian goods exported to the U.S. are exempt from tariffs due to the Canada-U.S.-Mexico Agreement (CUSMA), sectors such as automobiles, steel, and lumber continue to face significant duties. U.S. Ambassador to Canada Pete Hoekstra has indicated that some tariffs may persist even after CUSMA is reviewed this summer. Trump has also hinted at the possibility of allowing the trade agreement to expire or pulling the U.S. out entirely, which would dramatically escalate tariffs on Canadian imports.
Bessent’s tariff strategy has not only drawn scrutiny from Senate members across the political spectrum but has also raised concerns about its repercussions on American consumers and local economies. Democratic Senator Catherine Cortez Masto of Nevada pointed out a 20 per cent drop in Canadian tourist visits to the U.S., attributing it to the existing trade barriers and the administration’s divisive rhetoric. She directly challenged Bessent, asking if he would apologise for the adverse effects on American families reliant on Canadian tourism.
Bessent attributed the decline in Canadian tourism to a struggling Canadian economy, claiming that tariffs were not responsible for the downturn. He further questioned whether the U.S. should lower trade barriers with China to attract more tourists, provoking a critical response from Cortez Masto regarding the broader implications of the administration’s policies.
A Shift in Economic Perspective
Bessent faced additional scrutiny during a recent U.S. House of Representatives financial services committee hearing, where he acknowledged his previous statements regarding tariffs being inflationary. He admitted to being incorrect, asserting that the U.S. economy is currently thriving and inflation is on the decline, despite the ongoing trade conflicts. He remarked, “So tariff inflation was the dog that didn’t bark,” suggesting that the anticipated negative impacts of tariffs have not materialised as expected.
Why It Matters
The ongoing tariff dispute between the U.S. and Canada highlights the fragility of trade relationships in a rapidly evolving global economy. As both nations grapple with the implications of their trade policies, the potential for increased tensions looms large. With significant sectors like tourism and automotive manufacturing at stake, the decisions made today could reverberate through the economies of both countries for years to come. The outcomes of these negotiations will not only shape bilateral trade but will also influence the broader dynamics of international trade in the context of rising competition from countries like China.
