29-05-2025
For Canadian economy, U.S. court ruling on tariffs brings hope, but also uncertainty
A U.S. court ruling that slammed the door on most of President Donald Trump's tariffs dangled a reprieve from trade chaos for Canadian exporters before it was temporarily paused by yet another court. But experts warn a new wave of even greater uncertainty could be unleashed, depending on how the legal tussle unfolds.
The initial ruling, by the U.S. Court of International Trade on Wednesday evening, struck down the Trump administration's 'Liberation Day' tariffs against more than 50 countries, along with tariffs Mr. Trump imposed on Canada, Mexico and China that were tied to fentanyl and border security.
The court found Mr. Trump overstepped his authority by bypassing Congress to impose the tariffs on national emergency grounds.
However, less than 24 hours later the U.S. Court of Appeals for the Federal Circuit granted the Trump administration's request to pause the lower court's ruling while it considers a challenge from the White House.
The frenetic period for U.S. tariff policies underscores the challenging and uncertain situation the Canadian economy finds itself in – but also suggests that further relief from punishing duties is possible.
'There is a glimmer of hope for Canadian exporters but the timeline for relief, if there even is relief, is still unknown,' said Julia Webster, a partner and trade lawyer at Baker McKenzie in Toronto.
The trade court ruling still left other tariffs in place, such as duties on all steel and aluminum imports, including from Canada.
Despite that, the decision offered reasons for optimism for Canada's economy, according to economists.
'If this ruling sticks and depending upon the course of actions from here, then the risk of recession in the U.S. and Canada has been sharply reduced,' wrote Derek Holt, an economist at Bank of Nova Scotia, in a research note on Thursday morning.
If the ruling holds, the average effective U.S. tariff rate on Canadian imports would drop by 1.2 percentage points to 2.6 per cent, while the tariff rate on goods from Mexico would decline by 2.3 percentage points to 2 per cent, according to research by Scotiabank's economics team.
However, the decision could trigger 'a game of Tariff Whack-a-Mole' in which Mr. Trump shifts the tactics he uses to impose tariffs, only for other court rulings to shut those down, Mr. Holt said.
In addition to the national emergency grounds, Mr. Trump still has at least five other mechanisms he can use to impose tariffs without the approval of Congress, including sector-specific tariffs such as those imposed on steel and aluminum under Section 232 of the Trade Expansion Act.
If anything, the trade court ruling could heighten uncertainty 'by forcing Trump to consider other and more legally-secure ways to impose new tariffs over the next few days and weeks,' according to a report by economists Thierry Wizman and Gareth Berry at Macquarie.
The decision also would mean 'freer' trade agreements that may have emerged from negotiations with trading partners in the coming weeks would be 'put under a cloud of doubt,' they wrote.
Against the backdrop of conflicting court decisions, business leaders said what's needed most is a new trade deal between Canada and the U.S.
'The end of this trade war with the U.S. will not come through the courts,' said Candace Laing, president and chief executive officer of the Canadian Chamber of Commerce, in a statement. 'It will come when we have negotiated a durable, new agreement on trade that is trusted and respected by all involved.'
For now, companies would be wise to continue any duty-mitigation measures they've put into practice because 'the tariffs are in place until they're not,' Ms. Webster said.
If the ruling stands, importers who have paid tariffs to date could eventually submit refund requests to the U.S. government, she said. However with so much still up in the air, that paperwork may not be worth the time and effort.
Nor would the ruling answer more fundamental questions facing companies.
'This doesn't change what businesses have been struggling with the most, which is whether this is a wholesale reordering of the trading order that we've known to exist for decades,' Ms. Webster said. 'The waters have not settled.'
