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While Trump never admits he is wrong, he often walk backs a policy initiative in a hurry if challenged directly. On Saturday, Feb 1 he announced at 25% tariff on Canadian and Mexican imports, carving out a 10% tariff on energy imports, principally oil and gas. Canadian officials, corporate leaders and the Canadian public at large were enraged that the Canada, the oldest, most reliable US ally, would be treated with such contempt. By Monday morning, Trump announced, after speaking with Prime Minister Justin Trudeau and the President Claudia Sheinbaum, the starting date for tariffs was pushed back by a full month. Mexico and Canada represent the two largest US trading partners, supplanting China, a long time Trump bête noir. Moreover, Trump, not doubt, believed Canada and Mexico would be push overs, since both countries relied heavily upon the US market.
Since Trump has multiple agenda items in using tariffs, the reasons behind “punishing” Canada are often very obscure. On the surface, he claims that Canada is a major source of illegal immigration into the US and illegal drug smuggling. Both claims have no basis in fact, but provide Trump with the whipping boy he is so fond of using. Frequently, Trump notes that Canada has a large positive trade balance with the US and this needs to rebalanced in favour of the US. According to some key Trump advisors, tariffs are the only answer to correct this imbalance. This is a disguised reference to the 18th century mercantilism philosophy which advocates that a country only becomes wealthy if it runs a positive trade balance.But trade is always a zero-sum game, so this is impossible to achieve, and ultimately will prove ruinous as worldwide trade declines. The weekend’s announcement of tariffs hit financial markets right from the opening bell.The stock market sold off, bond yields started to move up and the US dollar appreciated significantly. Investors did not take kindly to a looming trade war. In less than 72 hours, Trump walked back his tariffs in response to a US domestic backlash that promised, ultimately, to trash his proposals with respect to both Canada and Mexico.Major US business groups representing all aspects of the American economy warned that a North American trade war would lead to higher consumer prices, especially at the grocery counter and at the gas pump. Canada lost no time in announcing its tariffs on about C$155 billion of US exports. Trump’s bravado, as one would expect, claimed that “we don’t need anything they {Canada} have”. The business community and many northern state governors can testify to the contrary as their political constituents rely upon heavily on a vast two-way trade with Canada. Canada and Mexico offered up token responses to Trump demands over immigration and drug issues. President Sheinbaum agreed to Mexico sending more troops to the border to stem migration and drug trafficking and Trump agreed to drop the tariff threat. In a similar vein, Prime Minister Trudeau offered relatively minor concessions to the US president, include beefing up border security and appointing a “fentanyl tsar” what ever that job entrails. What does he expect to happen in the next 30 days that would fundamentally alter his grievances with Canada and the Mexico? Was it all about providing Trump with a “win” and on what issues?So, while many continue to take Trump at his word, it is highly unlikely that major tariffs will be back on the table next month to anywhere the degree we just witnessed. Even it were case, Canadian and Mexican negotiators know full well that his bark is worse than his bite and continuous threatens eventually are not taken seriously.More By This Author:The US-Canada Trade War Starts In Earnest: The Risks To The US Are Substantial
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