Whether Donald Trump acts immediately on his threat to impose broad tariffs on Canada’s exports to the United States or delays them to a later date, Canada is stuck in the upside down.

When the president’s nominee for commerce secretary, Howard Lutnick, offers assurances that Canada might be able to avoid immediate tariffs if it addresses concerns that Canada is a haven for Mexican drug cartels and illegal migration into the United States, Canadians are left with the inescapable fact these concerns are not backed by evidence, making them hard to address.

When the same nominee indicates that tariffs, starting as early as April 1, are separately under consideration, Canadians should probably anticipate that some tariffs are coming at some point and for any number of reasons.

When, one day later, Trump counters that tariffs are indeed coming very soon and at 25 per cent to start, with no firm decision on whether Canada’s oil and gas exports would be excluded, we can see trade with the U.S. will exist in an alternate dimension for some time, regardless of what happens on the February 1 or April 1 deadlines.

Given the value of trade between the two countries, a 25-per-cent tariff would amount to a new tax of $109 billion per year on Canadian exports to the U.S. If re-exports (goods entering Canada, including from the U.S., but destined for the U.S. market) are included along with oil and gas, the expected value of the tariffs reaches at least $149 billion (over a 12-month period, based on 2023 trade data).

The first-order economic effects would hit some 46,000 businesses and about 10 per cent of the workforce in Canada.

If the Government of Canada makes good on a commitment of dollar-for-dollar retaliatory tariffs, the second-order effects could see important price increases on goods (like food and pharmaceuticals) where supply chains for many consumer goods originate in or cross through the United States.

The federal government has promised “pandemic-level” support for workers and businesses if Trump moves ahead with his trade war.  In the short term, retaliatory tariffs may raise some new revenues (though not at the full target value of the tariffs) for the Government of Canada that it could recycle into the economy.

Some commentators have understandably warned that policymakers shouldn’t repeat pandemic-era mistakes in the design and delivery of this planned support. So, what were the key mistakes and how can policymakers avoid them this time around? Let’s start with what and who should be protected.

Businesses have a reasonable expectation of transitory support, but they do not have a right to insurance on their profits. In the short-term, support should focus on avoiding layoffs. Even temporary layoffs disrupt employer-worker relationships, making it difficult for businesses to restart quickly. They also cause hardship for workers who cannot pay rent or buy groceries in the currency of hope for future paid work.

Insuring wages, not profits

During the pandemic, the Canadian Emergency Wage Subsidy (CEWS) was announced as a subsidy for wages with the aim of keeping workers attached to their existing employers. But it came too slowly and with too little capacity to target at-risk jobs within businesses. Work-sharing agreements in the Employment Insurance (EI) program have lots of accountability measures built-in, but the program isn’t well known by employers. Those who do use it find the program is administratively burdensome and slow, given that each application has to be carefully and manually reviewed. CEWS, on the other hand, ended up being far too costly on a per-job basis and its successor program probably incentivized aggressive tax planning among small business owners.

To be effective in a crisis, good programs need to be fit for purpose – paid at a level that works, paid where it’s actually needed, and paid in a timely manner. In the short run, we may need another national wage-subsidy program to manage any disruption in trade with our biggest trading partner.

The problem of identifying eligible employers

If government had a system of real-time seamless payroll reporting, it wouldn’t have to guess the right level, place and timing of support. Government wouldn’t have to set up a wide-open program like the Canada Emergency Wage Subsidy and invite employers to use it if they think it would help them.

If policymakers could pinpoint the specific businesses and workers most affected by tariffs, a good wage subsidy could be done quickly and accurately. A CEO might not see her pay cut because of lower demand from U.S. buyers but machinists in the same firm might. Policymakers should target the help where it’s needed, and ideally before there are layoffs that will send thousands of workers into the uncertainty of the EI regular benefits system.

Employers in Canada already send in regular reports and remittances to the national tax agency to say how much they paid employees and to hand over taxes withheld at source. While their own internal payroll systems carefully record who they paid (or should, to comply with the law), the Canada Revenue Agency (CRA) instructs employers to only share the detailed employee-level reports once a year.

If an employer has laid off someone, Service Canada requires them to share much of the very same information at the employee-level in the form of a record of employment, just in case the worker applies for EI benefits.

A window of opportunity lost

In the 2021 federal budget, one year into CEWS and other pandemic benefits, the Government of Canada reflected that “the COVID-19 pandemic highlighted the need to accelerate the government’s commitment to implementing a real-time e-payroll solution that will reduce red tape, and increase the delivery, speed, and accuracy of services and benefits.”

The most recent planning report from the Canada Revenue Agency (CRA) for the fiscal year ending March 2025 recommitted to “developing a fully costed implementation plan by March 2024.” (I was on the e-payroll advisory group until I received a final ‘thanks for your help’ email in March 2024.) We are now headed towards possible February 1 or April 1 tariffs and we don’t even have a working e-payroll pilot initiative.

There will be time for accountability from public officials on this failure to deliver. In the meantime, we’re headed into a trade war with the state systems we have. How can policymakers make the best of them to respond to a looming economic crisis?

Working with what we have

Every business remitting payroll must have a business number. The application for it requires that they describe their main industry and activity. Separately, businesses directly involved in import-export activities have to register for another system that links to their CRA business number. The registration information provided by businesses in each of these systems should be mapped by government officials to the standardized codes that are used in international trade systems to identify industries and products. This means the risk of exposure to Trump’s tariffs can be independently estimated outside of self-declarations from businesses.

Access to taxpayer-funded help should be a function of a viable business’s exposure to the random misfortune of Donald Trump’s policy style. It shouldn’t be a function of their ability to know what to say on the right application form.

Likewise, employers submitting payroll must report the count of workers on pay, as well as the total value of compensation paid. If we can’t currently connect aggregate payroll information to individual people, we can at least design programs so that they encourage firms to maintain as many workers as possible, not the same total payroll level.

What about individual Canadians?

There will be second- and third-order effects from Trump’s wrong-headed tariffs. Retaliatory measures by the Government of Canada will also likely increase prices for Canadian consumers, some of whom will not be able to find non-tariffed substitutes.

Some workers will have recourse to Employment Insurance. But, as we learned in the pandemic, eligibility is tightly restricted to those with a history of paying premiums and a pattern of employment in certain forms of work and at stringent threshold levels. In most years, the EI system provides regular benefits to no more than 40 per cent of unemployed workers. The usual first move by policymakers when there are sudden large layoffs is to tinker with the EI system, to let a few more workers qualify or wait less time for benefits to start. In any case, the EI system is not yet on a modern platform that could quickly handle a big influx of claims.

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If this trade dispute goes on long enough, or spreads widely enough in the economy, policymakers will probably be forced to concede that they need to do something more than targeted wage subsidies and tinkering with EI. The provinces are in an even worse position when it comes to administering payments to individual people.

The federal and provincial governments will again turn their lonely eyes to you, Canada Revenue Agency. This time around, the tax agency shouldn’t just look at your last tax return – likely filed in spring 2024 for your 2023 income. The program rules should be written so that all the CRA records – like T4s and T5s (due on or before February 28) – can be used to get an updated sense of personal income.

Programs that are fit for purpose in this new topsy-turvy reality will have to make better use of existing government data systems. The pandemic lesson isn’t to do the same thing as last time, or to do less, but to do it smarter.