U.S. tariff revenue piles up as Canada abandons tit-for-tat trade war approach

In the first few months of the trade war, Canadian officials often used the term tit-for-tat to describe their strategy for fighting back against U.S. President Donald Trump’s tariffs on imports from Canada.

Now, with Canada largely abandoning its counterpunch strategy, government finance records show the U.S. is accumulating a growing horde of tariff revenue from Canadian imports, even as Canada’s own tariff haul from imports of U.S. goods is set to dwindle.

For a time, Canada appeared to come close to matching the U.S. in the tariff revenue the two sides collected on imports of each others’ goods.

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When the White House slapped its initial 25-per-cent “fentanyl tariffs” on goods from Canada, with exemptions for products that comply with the North American trade pact, and then imposed 25-per-cent sectoral tariffs on steel, aluminum and autos, the Trudeau government fired back with its own 25-per-cent tariffs on roughly $90-billion of U.S. goods.

Canada was one of only two countries that hit back at U.S. tariffs, China being the other.

By April, when Canada’s countertariffs were in full effect, Ottawa collected an estimated $828-million in duties from U.S. imports, compared with $943-million (converted to Canadian dollars) collected by the U.S. on trade flowing the opposite way.

It’s impossible to know exactly how much Canada has collected in duties from U.S. goods. Unlike the U.S. Census Bureau, which publishes detailed, monthly calculations of duties by commodity type and country, Canada’s Department of Finance provides only a monthly customs revenue total in its fiscal monitor.

However, by comparing how much Ottawa collected each month compared to the year before, a picture emerges of the tariff revenue generated by the Canada-U.S. trade war.

Not all the annual increase in Canada’s tariff revenue is from U.S. imports. Last October, Ottawa imposed tariffs on certain Chinese-made goods, such as electric vehicles and steel and aluminum products.

But those tariffs only led to a small bump in Canada’s customs revenue, compared to the significant increase in the wake of retaliatory tariffs against the U.S.

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While the tit-for-tat pattern continued in subsequent months, the latest fiscal monitor released last week for the month of July revealed the smallest year-over-year increase in Canadian tariff revenue since the trade war began, and it’s only going to shrink further going forward.

Canada had already provided many carve-outs from its U.S. countertariffs in order to shield Canadian manufacturers and food and beverage processors from higher prices.

Then in August, Prime Minister Mark Carney said Canada would ditch its “elbows up” approach by scrapping tariffs on U.S. goods that comply with the United States-Mexico-Canada Agreement starting Sept. 1. In fact, an even wider swath of U.S. imports was granted exemptions than initially announced.

Meanwhile, Mr. Trump has ramped up the tariff rate on Canadian imports. He increased fentanyl tariffs to 35 per cent on non-USMCA compliant imports, doubled the steel and aluminum tariff rate to 50 per cent and last week, targeted other industries like furniture and cabinet makers, pharmaceuticals and heavy truck manufacturers with new tariffs.

Decoder is a weekly feature that unpacks an important economic chart.