Image Source: Unsplash
 

    Trump Takes the Dumbest Tariff Plunge, Headlines, Wall St Journal, (2025-03-04)

True to form, Trump takes aim at what he thinks is a weak adversary, in this case Canada. Today he announced a 25% tariff on imports from the US largest largest trading partners, Canada and Mexico. (Energy exports are subject to only a 10% tariff). In response to this “dumb” action by the American president, Prime Minister Trudeau immediately instituted a 25% tariff on C$30 billion of US goods, followed by an additional C$125 billion in three weeks time. Diary products, meats, grains, minerals, and a host of consumer products will be hit with a 25% tariff as they enter the U.S. 

The WSJ called“ the levies the ‘dumbest’ in history, and we may have understated the point’. Canada intends to keep the tariffs in place until the US withdraws their tariffs. Trudeau even goes further in stating that a series of non-tariff trade barriers are being considered, especially those related to provincial jurisdictions. Canada came out swing.

Trade between the two countries is not confined to just goods crossing the border. A growing share of international transactions are recorded as “services”. International trade in services is best described as “intangible”, such as, banking, technology transfer, consulting, transportation and communications. The U.S. generates a surplus in cross border services with Canada. Combing trade in goods and services, Canada barely operates an overall surplus, surely, not one that would qualify as an emergency warranting US tariffs.

The loose definition of how to apply the tariffs is turning out to be a major headache, especially for the North American auto sector. Trump taxes are destined to hit every cross- border transcation in the auto sector. Given that the most popular “American “vehicles are so interconnected that is it not unheard of for an engine to traverse the border multiple times prior to full assembly. Auto executives lament the prospects of mass layoffs, as car prices shoot up by $7,000 on average.

Mexico has yet to announce its retaliatory measures, but expect an equally strong response from its president.   

Trump has been known to walk back many policies that were harmful to all concerned. The tariffs fall into that category. Canada’s retaliations will hit key border states and key industries quickly. Expect a political backlash from many quarters, even within Trump’s political supporters. Already, the financial markets are grappling with an unusually high degree of uncertainty. The US economy is slowing and signs of weakness are emerging. At the same time, tariffs will result in a spurt in consumer prices. An inflationary recession is not out of the question, should the trade war persist. 

More By This Author: