Trump says Canada could avoid tariffs by becoming a US state

President Donald Trump has reiterated his threat to impose tariffs on Canada, saying they can be avoided if the neighboring country chooses to “become a state” of the US.

Addressing global business leaders at the World Economic Forum, Trump complained about a “tremendous” trade deficit with Canada and said the US does not need Canadian energy, vehicles or lumber.

“You can always be a state, and if you are a state, we won’t have a deficit. We won’t have to impose tariffs on you,” he gasped in the halls of Davos.

Trump has threatened to impose tariffs of up to 25% on Canadian imports, possibly by February 1.

The renewed threat of tariffs has been met with deep unease by trade-reliant Canada.

But it has also said it would consider significant retaliatory measures, including a “dollar for dollar” response if the Trump administration follows suit.

About 75% of Canada’s exports go south. In contrast, Canada accounts for a much lower 17% of US exports, although it is the second largest US trading partner after Mexico.

Trump said in his remarks Thursday that Canada has been very difficult to deal with over the past few years.

“We don’t need them to make our cars, we make lots of them, we don’t need their wood because we have our own forests… We don’t need their oil and gas, we don’t have any There is even more,” he told attendees at the forum via video link from Washington, DC.

Trump repeated his claim that the US trade deficit with Canada is between $200 billion and $250 billion. It is not clear where he got this data from.

The trade deficit with Canada – expected to reach $45 billion in 2024 – is mostly driven by US energy demands.

The North American auto industry also has highly integrated supply chains.

Auto parts may cross the borders of the United States and between Mexico and Canada several times before a vehicle is finally assembled.

Trump has also linked the tariffs to border security, saying they would be imposed unless Canada increases security at their shared border.

Canadian Prime Minister Justin Trudeau has repeatedly said everything is on the table in response if tariffs are imposed.

This could include taxes or restrictions on energy exports to the US, although some Canadian provincial leaders disagree with that response.

On Thursday, Trudeau told reporters that Canada aims to avoid U.S. tariffs altogether, but if tariffs are imposed it will “gradually” escalate its response and seek removal of the tariffs.

Canada is also presenting itself as a reliable trading partner and a secure source for the US for energy and critical minerals as it lobbies US lawmakers to avoid tariffs.

Economists suggest that the US is dependent on Canadian products for energy security.

In 2024, Canadian energy exports are set to reach nearly $170bn (C$244bn), according to a recent analysis from TD Bank economists.

Trump also said on Thursday that if businesses want to avoid tariffs, they should make their products in America.

Tariffs are a central part of Trump’s economic vision – he sees them as a way to boost the US economy, protect jobs and increase tax revenues.

The new president has ordered federal officials to review US trade relations for any unfair practices by April 1.

With reporting from Economics Editor Faisal Islam in Davos.