Playing the Long Game: Inside Canada's Calculated Response to Trump's Trade Threats

Canadian food exporters are finally looking further afield

I'm back with more thoughts after Thursday’s deep dive into Trump's tariff threats.

But before I get into what I think is likely to happen and what smart companies are doing about it, let me share what I'm seeing in Ottawa, Washington and Mexico City, because it tells us a lot about where this is headed.

While we've all been reading the headlines, Ottawa's been working overtime for once. It's remarkable how quickly an imminent threat to the economy will catapult bureaucrats and politicians - of all stripes - into action.

Trudeau's been having late-night calls with Trump (imagine being a fly on the wall for those conversations - it’s well know that the two leaders don’t like each other much), while Chrystia Freeland's been reminding anyone who'll listen that Canada is the largest export market for 36 US states. That's significant leverage.

Behind the scenes, Canadian officials are preparing methodically. They're looking at potential retaliatory tariffs, but not the scatter-shot kind. Just like during Trump’s first Presidency, they're carefully targeting products that would hit Trump's base where it hurts. This strategy was successful then and it’s the kind of planning that suggests they're expecting negotiation, not all-out trade war.

Meanwhile, in Mexico City, we're seeing a similar pattern of measured response to Trump's threats. When Trump claimed victory after a recent call with President Sheinbaum, declaring she had agreed to "stop migration through Mexico," her response was markedly different.

While Trump posted: “Mexico will stop people from going to our Southern Border, effective immediately. THIS WILL GO A LONG WAY TOWARD STOPPING THE ILLEGAL INVASION OF THE USA. Thank you!!!”, President Sheinbaum pointedly emphasized that Mexico's position is "not to close borders but to build bridges between governments."

It's also worth noting that Mexico has already reduced border crossings by 40% from December's peak through existing enforcement measures - suggesting they're managing migration their way, not bowing to external pressure.

One of the main problems governments and analysts face with Trump is that it is extremely difficult to tell a late night angry outburst on social media from actual policy. He’s proven to be a master of using these kinds of missives to achieve political results in record time, and the current scenario is no different.

Yet I still don’t think that a 25% tariff is realistic.

Yes, it makes for dramatic headlines and campaign speeches, but here's what’s important: The northern states that would be hit hardest by Canadian tariffs rely heavily on Canadian oil and trade. Slapping a 25% tariff on Canadian goods would send gas prices soaring exactly where Trump needs support most.

What's more likely is what I'm calling a "negotiation tariff" - something in the 5-15% range. High enough to get attention, low enough to avoid economic meltdown.

Trump will use this as leverage to get what he really wants: tougher border security, perhaps changes to Canada's dairy supply management system (which is in desperate need of overhauling), and resolution of other irritants left over from his first term. It's a pressure tactic, not an end game. It’s also worth noting that Canada has a long history of protectionist behaviour that has irked more than one US administration.

But looking at Euromonitor's latest data, smart companies aren't just sitting around waiting to see what happens. Several of our clients are already looking at markets like Southeast Asia. While many have been obsessing over the US market, the region has quietly become a powerhouse of food and beverage spending growth. And it's not just volume - we're seeing 4-6% annual growth in premium product categories.

The Middle East is even more intriguing. The Gulf states are showing some of the highest per-capita food spending globally. And unlike our mature North American market, their population is young and growing. They're hungry for Western brands and products, and most importantly, they have the money to spend.

I had a conversation last week with a Canadian drinks manufacturer who's been exporting exclusively to the US for 20 years. "We've been far too comfortable," he told me, "and we never bothered looking elsewhere." Now they're fast-tracking market entry plans for Singapore and Dubai. Yes they are worried about tariffs, but they also finally did the math on what they've been missing.

And that's really the point here. Yes, Trump's threats are disruptive. Yes, even a 10-15% tariff would hurt. But maybe - just maybe - this is the push many Canadian companies needed to finally look beyond the comfortable market next door.

The US will always be crucial for Canadian exporters. But in 2024, putting all your eggs in one basket is leaving money on the table.

Want to dig deeper into specific market opportunities? I'm looking at setting up some small group sessions to explore this further. Drop me a line if you're interested.