Tariff Turmoil

I don’t have much to say about the tariffs Trump is imposing on Canada, China and Mexico starting tomorrow. But here are a few comments.

Another Fine Mess substack today wrote that only 38% of Americans support the tariffs on Canada and Mexico. He then pointed out that that’s approximately the same percentage of Americans who can’t read at a Grade 5 level.

The tariffs are already creating turmoil in both economies.

Republican Senator Chuck Grassley, at 91 the oldest and longest serving US Senator, has a lot of unhappy Iowa farmer constituents who depend on Saskatchewan potash to grow soybeans and corn and can’t afford to pay 25% more for it. Iowa has about 85,000 farms and the farmers vote Republican. Word is Grassley is pleading with the president to make an exception for Canadian potash.

But that’s not the only agricultural issue.

The beef industry is highly integrated between the two countries. The tariffs will hurt the western Canadian beef industry and raise the price of beef in the US.

Central Canada (mainly Ontario) will be hit even harder.

The North American auto manufacturing industry is highly integrated. Canadian auto exports brought in about $51 billion in 2023 with 90% going to the USA. The Financial Post estimates the tariff will add $3,000 to the average price of automobiles, driving down sales and ultimately shutting down factories in both countries.

And that’s just a few examples – every industry in both countries will be affected in both predictable and unpredictable ways.

Trump’s excuse for implementing the tariffs on Canada and Mexico is to coerce these countries to do more to curb fentanyl coming in to the US across their borders. Canada pointed out that less than 1% of the fentanyl in the US comes from Canada (43 pounds vs. 21,100 pounds at the Mexican border in 2024). Also that more drugs cross the other direction into Canada from the USA. Then there are guns. Most guns used to commit crimes in Canada come from the US, smuggled across the border. The same is true in Mexico – the Mexican drug gangs buy their guns in Texas because Mexico has tougher gun control laws.

But that’s just the excuse. The real reason is to demonstrate strength and power.

Robert Reich wrote this today

The reason Trump has raised tariffs on Canada and Mexico is not to have more bargaining leverage to get better deals for the United States from Canada or from Mexico.

Hours before the Canadian tariffs went into effect, Trump was asked if there was anything Canada could do to stop them. “We’re not looking for a concession,” Trump said, speaking to reporters in the Oval Office on Friday afternoon. “We’ll just see what happens, we’ll see what happens.”

The real reason Trump has raised tariffs on Canada and Mexico is to show the world that he’s willing to harm (smaller) economies even at the cost of harming America’s (very large) economy.

The point is the show — so the world knows it’s dealing with someone who’s willing to mete out big punishments. Trump increases his power by demonstrating he has the power and is willing to use it.

The turmoil is the point.

 

Sources

https://tcinla757.substack.com/p/poking-around-its-only-been-three

https://robertreich.substack.com/p/what-you-need-to-know-about-trumps

https://heathercoxrichardson.substack.com/p/february-2-2025

I posted this too soon. About an hour later the news came out that Trump had talked to Trudeau and Sheinbaum and postponed the tariffs on Canada and Mexico for 30 days while they work on border solutions. Trudeau announced a $1.3 billion border plan which I noted did not cover drugs or guns coming across the border into Canada. It looks like Trump got what he wanted from the tariff threat after all, which was an excuse to back down. The turmoil from the tariff threat was enough.

And later that night I learned that most of what Trudeau promised was part of a proposal made to the US back in December.  The only new items were the appointment of a "Fentanyl Czar" (I wonder whose idea that was!) and the naming of drug cartels as terrorists. Again Trump didn't get much for his blustering but maybe the blustering was the point. But White House Press Secretary Karoline Leavitt put a positive spin on it proving that this was the purpose of the tariff bluff: "Canada is bending the knee, just like Mexico."

My theory is that it was the sudden drop in the Dow-Jones that prompted Trump's about-face, not anything that  Canada or Mexico offered or threatened. And certainly not from any advice from his economic advisors - a genius like him doesn't need any advice because - wait for it - "I've got common sense".

Another update (Feb 7, 2025). Just saw some Canadian border stats in Murray Mandryk's Saskatoon Star Phoenix column today. While 43 pounds of fentanyl were intercepted going from Canada to the USA in 2024, 882 pounds were intercepted coming into Canada from the USA. Similarly 3,000 illegal guns entered the USA from Canada while 30,000 entered Canada from the USA. As to "irregular entry" migrants in 2024, 18,644 entered the USA from Canada; 28,000 entered Canada from the USA. Canada should tell Trump - you fix your border problem and we'll fix ours, no tariffs required.

https://thestarphoenix.com/opinion/columnists/mandryk-want-to-survive-trump-dont-take-his-untruths-literally/wcm/b875c687-20f9-4260-948b-be8a7951dfa1