Proposed trade measures in limbo as Trudeau steps down

Prime Minister Justin Trudeau's recent resignation and the prorogation of Parliament have introduced significant uncertainty into Canada's trade policy landscape. The suspension of parliamentary activities until March 24 delays the progression of key legislative amendments and trade measures outlined in the federal fall economic statement (FES). Notable measures at risk include proposed amendments to the Export and Import Permits Act, the extension of surtaxes on Chinese imports, and the implementation of a border carbon adjustment. Additionally, the potential for a non-confidence vote and subsequent election further complicates the future of these trade policies. Stakeholders engaged in cross-border trade, particularly with the United States and China, should closely monitor developments and prepare for potential adjustments.

Prime Minister Justin Trudeau’s recent decision to prorogue Parliament has raised concerns over Canada’s response to foreign trade measures and Donald Trump’s upcoming inauguration. Notwithstanding the suspension of parliamentary debate, progression of draft legislation, and committee work until March 24, the government is still permitted to act within its legislative authority to respond to trade actions. In the federal fall economic statement (FES), the government announced several trade related changes. Where these changes require legislative amendments or changes to trade policy, their future is unknown—especially as other political leaders voice an interest in a non-confidence vote and election following the resumption of government. Selected trade measures from the FES at risk are discussed below.

FES Statements in Relation to Specific Countries

In terms of the United States, the FES contained a message of collaboration and a reminder of Canada’s long-standing relationship with its neighbour. However, it also noted that Canada acts for its business and workers, using as an example the 2018 tariffs applied to the United States.

Further, the FES reiterated the federal government’s concerns that China engages in non-market trade practices and announced an intention to extend existing surtaxes to include semiconductors, permanent magnets and natural graphite from China beginning in 2026.

Export and Import Permits Act

The FES proposed amendments to the Export and Import Permits Act. The amendments would allow the government to restrict imports and exports to either respond to state actions that harm Canada or to increase security and reliability of supply chains. It is unclear how “harm Canada” will be defined for the purposes of this legislative change, though reasoning for the measure is cited as “autocratic regimes’ use of economic coercion, unfair trade practices, and exploitation of supply chain dependencies”. Canadians need to be cognizant of the potential increased risk of restrictions on imports and exports. Ideally, the government will continue consultations with impacted parties as done with the Chinese surtaxes to limit negative impacts. These measures would require legislative change, and therefore cannot be implemented until Parliament resumes.

Reciprocity

Investment tax credits provide tax offsets, and occasionally tax refunds, to encourage business investment in priority areas such as clean technology. The FES stated that these credits are among federal spending and policies that Canada intends to start allowing foreign tax partners to access only if reciprocal access to equivalent programs for Canadian businesses is similarly available.

Border Carbon Adjustments

A border carbon adjustment is effectively an import tariff based on carbon created in production of the imported goods. These adjustments are intended to incentivize environmentally friendly practices and create an even playing field between countries with varying environmental regulations. The European Union introduced its own border carbon adjustment mechanism in 2023.

The FES stated the government is continuing the process of implementing a Canadian border carbon adjustment. The Conservative party, who appear to have the strongest likelihood of replacing the current government in an election, have generally opposed the domestic carbon tax. This position may extend to progressing the border carbon tax adjustments. 

Looking ahead

There is still a large degree of uncertainty around the future of Canadian tax and trade policies. Those engaging in cross-border trade—especially with China and the United States—should monitor announcements on trade policy and where possible, negotiate with United States based suppliers and customers to ensure agreements can be adapted to potential trade measures.