As Canada processes the new Trump tariff threat and considers its options, assuming the tariffs are actually implemented, one imagines that retaliatory measures will eventually be employed. These can consist of either tariffs on American imports or export taxes on Canadian export goods in high demand by the American market. What is interesting in the list of proposed American tariffs released yesterday is the 50 percent tariff on “Toilet or facial tissue stock, towel or napkin stock and similar paper used for household or sanitary purposes, in rolls or sheets not of cellulose wadding” imported from Canada. The United States is a very high per capita consumer of toilet paper using annually an average of 140 rolls or 12.7 kgs per person. It seems odd that in the age of affordability, the American government would make such a vital commodity more expensive for the average American but then above average Americans have probably been corrupted by bidets and are oblivious to the sanitary expenses of their lower income citizens.
A tariff on toilet paper can of course lead to an immense amount to low brow humour especially in the wake of the current deluge of diarrhea plaguing the United States. It does lead to the question of how much leverage Canada might have over the United States when it comes to toilet paper. According to statistics from the World Bank, in 2023 the United States imported 186,304,000 kgs of toilet paper of which Canada supplied 96,957,900. As Figure 1 illustrates, Canada is the largest supplier of toilet paper to the United States accounting for over half of its imports. The next largest is Mexico at 18 percent followed by China (14 percent), Indonesia (8.3 percent) and Vietnam (4.1 percent) with the rest of the world accounting for just over three percent. On the surface, it looks like Canada has an intestinal stranglehold that it could play to its advantage.
However, this analysis is misleading because while Canada accounts for over 50 percent of U.S. toilet paper imports, imported toilet paper accounts for anywhere between 5 and 10 percent of American toilet paper consumption. In other worlds, any leverage from being such an important supplier is lost in the sheer size of total American consumption most of which is domestically supplied. Given that Canada supplies at best a few percent of total U.S. toilet paper consumption, a more expensive Canadian product either via tariffs or export taxes will be replaced either with more domestic production or cheaper imports.
Retaliating via an export tax or export ban on toilet paper to the United States is at best a tongue in cheek approach to resolving our trade disputes with the United States. However, the toilet paper case is an important illustration of the dilemma that Canada faces when it comes to retaliation. While we are the largest foreign supplier of many imported goods for the Americans, our share of their total market consumption is often so small as to be negligible which of course reduces our leverage. There are only a handful of commodities whereby Canada has a noticeably significant share of the American market, and these are mainly resource products such as oil, natural gas and potash.
For example, about 60 percent of American crude oil is produced domestically with the remainder imported and of that imported share, Canada accounts for nearly two-thirds. In other words, the United States relies on Canada for 20 to 25 percent of its oil. The United States also relies on 85 to 90 percent of its potash supply from Canada which is a critical input into American food production. Export taxes on these commodities would indeed get noticed in the United States but one wonders if even that will have any effect on decisions made by the Trump administration. After all, the United States gets over 50 percent of its aluminum from Canada and yet they have still put heavy tariffs on its import.
In terms of the end game here, should the Americans continue on their current path of tariffs, there are two alternatives. Canada could accept whatever terms the Americans want given our export dependence and lack of diversification which, based on their current position seems to be a deal that includes tariffs, will lead us to losing employment in many value added industries. Or, we can respond with our own broad based tariffs on our imports of U.S. value added products which will raise costs to Canadian consumers but preserve a larger share of our non-resource based industries. Neither is an attractive economic option, and the deciding factor will be which alternative is most acceptable to the Canadian public. In the interim, we wait to see if they actually follow through with the tariffs.
