SASKATOON, Sask. — Two academics have painted the Canada-U.S. trade relations as undergoing strain due to escalating tariffs and retaliatory measures by both countries, with Saskatchewan businesses facing increased uncertainty over access to the province’s largest export market.
Edwards School of Business dean Dr. Keith Willoughby, and University of Saskatchewan political studies faculty member Dr. Martin Gaal said the tariff dispute has entered dangerous and unpredictable territory, despite Canada and the U.S. having the world’s most deeply integrated trading relationship.
Both believe the two countries, although they remain economically dependent on one another, will eventually have to return to the negotiating table. Still, neither expects an immediate resolution or a quick return to the trade relationship that existed before the current dispute.
Willoughby and Gaal said the Canada-U.S. trade dispute has moved into dangerous and unpredictable territory, with the latest round of tariffs threatening to disrupt further businesses that have spent decades building supply chains around relatively open cross-border trade.
The latest escalation came after trade talks between the two parties broke down, with the U.S. imposing 50 per cent tariffs on about $20 billion worth of Canadian goods in August. Canada responded with retaliatory tariffs on more than $20 billion of U.S. products, which took effect Sept. 8.
Willoughby said he does not expect Canada-U.S. trade relations to return to what they were before 2024, and the relationship could eventually stabilize. He expects more U.S. emphasis on domestic production and a less integrated trading relationship than existed after the 1988 Free Trade Agreement.
“The relationship between Canada and the U.S. is so integrated that it's very difficult to disentangle the two economies,” said Willoughby, adding that both countries remain highly dependent on one another despite the deterioration in their trading relationship.
He said a prolonged trade conflict would damage both sides, with integration being particularly important for Saskatchewan, whose economy relies heavily on exports of agricultural products, potash, energy and other commodities.
Willoughby said businesses, especially those dependent on U.S. customers, find that the prospect of additional tariffs or changing trade rules makes planning increasingly difficult. Businesses may respond by seeking new customers and markets outside the U.S., but diversification can't happen overnight.
“There are opportunities to diversify, but diversification takes time. You can't simply turn a switch and suddenly have a whole bunch of new customers,” said Willoughby, adding that the widening range of measures makes the current dispute different from a conventional trade disagreement.
He said this also risks individual industries getting caught in a broader political conflict, an unusual trade environment in which businesses must decide without knowing whether current measures will remain in place or be replaced by something else.
Finally, he said the tariff dispute could become an important issue in the upcoming U.S. midterm elections, because tariffs can affect the affordability pressures facing ordinary citizens. With inflation and higher costs continuing to hit households, voters are likely to factor those into their decisions.
Gaal, meanwhile, said Canadian businesses' biggest concern is not simply the cost of an individual tariff. Still, uncertainty arises when companies can no longer predict what the rules governing cross-border trade will look like several months from now.
“Uncertainty is probably the biggest issue that businesses are facing,” Gaal said, noting that companies need stability when making decisions about investment, hiring, production and supply chains.
Gaal said the tariff dispute also creates a difficult balancing act for governments because retaliatory measures can demonstrate resolve while simultaneously increasing costs for Canadian businesses and consumers.
He said policymakers need to consider the broader consequences of each round of retaliation rather than viewing tariffs simply as a political response to tariffs imposed by the other country. The dispute has now expanded beyond traditional tariff measures.
Washington has also announced that, beginning Sept. 29, it will prohibit imports of certain Canadian alcoholic beverages, dairy products and motorcycles, while further threats have been made against other Canadian exports.
Gaal said the two countries ultimately have strong incentives to return to negotiations because the economic relationship is too important for either side to walk away from.
Both economists expect Canada and the United States will eventually return to the negotiating table. Still, neither expects an immediate resolution or a quick restoration of the relatively predictable trading environment that existed before the current tariff war.
For Saskatchewan businesses, uncertainty is likely to remain a central concern. Until the two countries reach a more durable agreement, Willoughby and Gaal say companies will have to balance their longstanding reliance on the U.S. market with efforts to find alternative customers and supply chains.
