Notes from the IAPP Canada: Tariff threats raise US-Canada data flow concerns

There are numerous concerns regarding the tariff threats toward Canada posed by the new administration in the U.S., and sadly, I am compelled to put yet another critical issue in front of you.

Data is intrinsically linked to trade, and it appears inevitable that a trade war would have significant consequences for data flows between Canada and the U.S. A fundamental element of the new North American Free Trade Agreement centers on the establishment of a continental digital services market. The imposition of tariffs could strain this agreement, with potential retaliatory measures that may include prioritizing Canadian-based services, thus emphasizing Canadian sovereignty and potentially leading to data localization requirements. Such developments could undermine the vision of a unified continental digital market.

Beyond direct governmental actions, the implications of tariffs and their impact on the Canadian dollar may indirectly encourage reductions in the consumption of U.S. services by Canadian companies and consumers as these services become increasingly expensive. Consequently, Canadian firms may be motivated to enhance local capacities, especially if trust in U.S. trade policies deteriorates to a level that significantly affects long-term planning.

Additionally, both as a national response to the tariffs and a reaction to escalating costs, it is likely Canadian businesses will seek to strengthen relationships with companies in the EU and the Asia-Pacific region as alternatives to costly U.S. services.

Although Canada's Bill C-27 has seemingly been set aside pending prorogation of Parliament, leading us toward an impending election, it is not certain that Canada will adopt a laissez-faire approach to artificial intelligence, similar to that of the U.S. Depending on the extent of the adverse impact from tariffs, Canada may gravitate toward adhering to European Union-based frameworks for AI governance, while simultaneously enhancing trade relationships with the EU.

One critical question arises: Could a tariff dispute accelerate the development of privacy legislation at both federal and provincial levels? I previously suggested privacy issues might be deprioritized amid the challenges posed by a trade war. However, it is crucial to acknowledge the potential for nontariff barriers, such as data localization laws, to emerge in this context.

While the tariff threats emanating from the U.S. administration primarily target economic relations, the ripple effects on privacy and data protection could be substantial. Canada would likely endeavor to diversify its trade partnerships, and enhance domestic capabilities in order to deal with the economic fall-out of a trade war. Canadian businesses will be faced with hard choices in 2025 that could have a profound impact on established data flows between the U.S. and Canada.

Constantine Karbaliotis, AIGP, CIPP/C, CIPP/E, CIPP/US, CIPM, CIPT, FIP, is counsel at nNovation.