Radio host Michael Medved invited me on his show recently to talk about President Trump’s tariff rollout and his recent broadside against Canada. Here’s the clip. Takeaways follow.
Status of the Canada trade war: In August, Trump smacked new 50% tariffs on about $20 billion of Canadian imports. Canada has said it will impose similar tariffs on a like amount of US imports starting September 8. Trump, in turn, said he’ll slap more tariffs on Canadian products starting January 1, including autos and auto parts.
[Trump’s sketchy Venezuelan oil deal]
Why is this happening? Because Trump loves tariffs, even though there’s overwhelming evidence they harm growth and employment and raise costs for Americans. Trump began targeting Canada last year with new tariffs. Canada retaliated by imposing its own tariffs on American imports. Trump finally counter-retaliated in August with the new 50% tariffs, prompting Canada’s counter-counter-retaliation. So this is Round 3 or 4 or maybe 5 in Trump’s trade spat with Canada, depending on how you count.
Important reminder: We have a free-trade pact with Canada! That is supposed to eliminate tariffs on most products crossing borders between the two countries. Trump’s new Canada tariffs undermine the trade deal with Mexico and Canada he hammered out himself in 2020.
Trump probably reasons that a tit-for-tat trade war with Canada will hurt the Canadian economy more than America’s. That’s simply because of size. The US economy is 13 times bigger than Canada’s and more diversified. This is a dumb way of thinking about it, of course: A prudent trade policy would seek ways to benefit everybody, not harm one party more than the other. But we are stuck with Trump’s trade nihilism, for now.
[It’s time to revive the American Dream]
One thing Trump may not have contemplated: Canada appears to be targeting its own retaliation at certain northern states most dependent on trade with Canada. Those include Michigan, Ohio and Maine. All three feature toss-up Senate races this year that could flip control to Democrats. Economic problems caused by Trump’s tariffs could give Dems an edge.
Trump’s tariffs are deeply unpopular, and politicians who hope to win elections don’t usually oppose voters’ wishes during the weeks before an election. Yet that’s exactly what Trump is doing. Three possibilities: He doesn’t care if Republicans win in the November midterms. It doesn’t matter if they win because Trump plans to steal key elections anyway. Or maybe Trump is losing his grip and doesn’t remember that elections are just two months away.
[What the bond market wants you to know]
More tariffs are coming after the elections. Trump’s trade team has been preparing a broad slate of import taxes to replace the “emergency” tariffs the Supreme Court shot down in February. We’ll be stuck with these foolish tariffs until Trump leaves office in 2029, unless he leaves earlier.
It’s also possible Trump may be planning to sharply revise or even pull out of his own 2020 trade deal with Canada and Mexico. That would have major economic consequences and they’d be uniformly bad.
Trump’s tariffs haven’t wrecked the US economy, as some critics predicted early in his second term. But they’ve probably slowed growth and done the same to the global economy. Real GDP growth was 2.4% during President Biden’s last year in office. The annualized growth rate now is 2.1%. That’s a meaningful slowdown that means fewer jobs and weaker income growth.
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