As I recently wrote on Cowen's blog, a lot of the electorate doesn't know how tariffs work.
Say I manufacture a widget in [country]. At present, there is no manufacturer of that widget in the USA. We export to the USA, and now the US importer or distributor pays a ~25% tariff on the declared value to Fedgov. Then that US importer or distributor receives the widgets and sells them. Because its margin is down, it raises its price. Who paid first? The US business that imported the widgets. Who pays in the end? The US customer.
Now say I manufacture some specialty aluminum rods in [country]. We export to a heatsink manufacturer in the US. As they need our rods, they pay the tariffs. Their product is now considerably more expensive and there's more friction in their supply chain.
The only way this ends is with Americans paying more for goods. It could be a lot worse than routine inflation.
The right way to go about things would be to shore up US manufacturing capabilities first, and then utilize tariffs selectively. Right now, there's really no way around foreign inputs in manufacturing and/or wholly foreign-made goods, so there's going to be a lot of pain.
>The right way to go about things would be to shore up US manufacturing capabilities first
The US has basically "full employment" (the economic measure when more employment is inflationary). In a vacuum the idea that you're "bringing home the jobs" makes sense, but it makes zero sense when you simply don't have the capacity to build more. If Americans thought inflation was unacceptable under Biden, they're in for a real shock now.
Americans have no idea how good they have it. They're the biggest consumer of goods on the planet, and basically want their cake and to eat it too. It doesn't work like that.
And really, the US essentially has balanced trade with Canada, and if you exclude oil the US has a massive trade surplus with Canada. So when Canada and Mexico both "shore up" their own capabilities and stop buying the $1T of goods from the US, where does that leave the US? It enjoys a massive internal economy -- an irrationally large one -- but much of that is illusory and built on a myth.
Liberal trade is the reason the US became the richest country on Earth. Trump thinks everything is easy and is about to crash it to the ground.
This also pushes long term bond rates higher to price inflation into the yield, pushing both government borrowing and long term consumer borrowing (mortgages) costs higher.
I don't know why the left always presents this "full employment" thing when defending the Biden administration when they know full well how misleading that is and who are not counted in those numbers and the fact that it does not account for "under-employment", it's kind of intellectually dishonest. You can make these implications that inflation will get much worse under Trump but I doubt anyone on the left will come back with any admission or credit when it turns out to be false, surely they will just say "it was really Biden's economy that got better" or something to that effect.
So, when Trump threatened Columbia with up to 50% tariffs, did the cost of coffee go up for the consumer, or is it about to, or did the Columbian president offer his presidential plane to pick-up people?
[country] may have no other place to sell to, at least immediately, and at the same transportation cost. Moreover, unlike US, [country] may not have diversified its trade. The US may be able to control inflation like last time, by buying some of these goods from elsewhere and through interest rates etc.
Maybe. And maybe it goes in reverse, like it did the the China vs Australia trade war. China was the big boy in that dispute, and it's Australia's biggest trading partner by country. It wasn't pleasant for either side, but in the end Australia diversified much faster the China.
Interestingly, Australia didn't retaliate against China. We keep buying the Chinese stuff at the usual cheap prices, and found other markets for our goods they banned. China paid more, or did without. So we didn't have any leverage, but China normalised trade with Australia after a while anyway.
I have no idea which way it will go here, but "USA big, Canada little, so USA wins" isn't a foregone conclusion.
Perhaps the most nimble nation wins. The most nimble nation usually isn't the one putting up trade barriers and antagonising neighbours and friends. I reckon you'll know the outcome by the end of Trump's term, if it said term doesn't continue forever.
good example. worth noting that there may well be strong appetite to rapidly diversify and lock in other trade agreements in Canada to offset this battle with America.
America will not be able to do the same right now (due to Trump's rabid isolationism, and declining trust on the part of other countries).
USD to CAD has front ran a lot of this already. 1.45 is crazy.
The idea Canada can so easily re-route trade is absurd. Especially when the trade is going to be settled in USD.
I have been trying to understand the point of all this and come up empty this morning. I would have to assume it is for enormous leverage in the trade deal that ultimately ends all this. The leverage this gives the US in a trade deal, especially with Canada is pretty incredible.
25% is just so insane that it probably does cause Mexico and Canada to concede to whatever Trump wants in a trade deal and in short order. I think this is why Trump won't even take a call from Trudeau right now. It is a leverage tactic and then when they do talk what leverage does Trudeau have? Basically zero.
Yes, the USA has massive leverage over Canada on basically every front. We are a small child standing next to a massive person with a gun. But what is the point of destroying us?
Our economy is already down. All of our tech elite move to Silicon Valley. Our energy infrastructure cant get off the ground. The USA dictates so much of what Canada is able to do.
What is the point of squeezing us more? We have so little we can offer you.
We've already given you the lives of our soldiers as we follow you into pointless wars. What more do you want? The pennies in our pockets?
We are hoping the electorate in the US doesn't want to find out. US leadership has threatened Canada and other countries with using economic or military force for annexation. Canadians are hoping that saner heads will prevail, but it's not looking very good. We are very much aware that our military has been underserved in every way by Canadians, and that was part of the reason I chose not to continue my military career.
In the meantime, we are carefully and cautiously reminding the United States that we fought many of the same wars and learned the same lessons as the US military about how insurgencies are fought, and while many of our friends, family, and neighbours are American, we are not, and do not want to, and will not be American. Do with that what you will.
Retaliatory tariff why? US tariff are self inflicted harm. If you see your neighbor slashing their wrists, slashing your own doesn't improve the situation. Canadian taxpayers will be the ones eating that cost.
> Their strategy is to make sure Americans feel the pain too. But they are likely to focus on what experts call precision strikes against U.S. exports from Republican strongholds and industry groups with political leverage in Washington.
> Late Saturday, Canadian Prime Minister Justin Trudeau said his country would impose 25% tariffs on more than $105 billion of U.S. goods. “We didn’t ask for this, but we will not back down,” he said, warning that American jobs in their auto and manufacturing industries were at risk.
> A first wave, set to take effect Tuesday, will hit $20 billion of imports from the U.S., including alcohol, coffee, clothing and shoes, furniture and household appliances. On Sunday, Canada released a list of tariff targets, including products from Republican-leaning states, such as whiskeys from Kentucky, oranges from Florida and appliances from South Carolina. Government officials on Sunday also said they were targeting motorcycles in Pennsylvania, which has a Harley-Davidson plant in York, Pa.
> A second wave on an additional $85 billion of goods would include tariffs on cars and trucks, agricultural products, steel and aluminum and aerospace products. The second phase will begin in three weeks, to give businesses enough time to stockpile and find alternatives.
The only reason America will feel significant pain from our own tariffs on Canada is because without it, the tariffs on Mexico are voided as Canada has free trade agreement with mex that would make black market proxying through Canada trivial. I suspect that's what this is really about, Canada has to be in lockstep or themselves tariffed for the Mexico tariffs to be persuasive upon Mexico. Otherwise cartels just route white market goods to Canada under shell companies and then to us at no tariff.
The Canadians should find some other way to punish us than cutting off their nose to spite their face imo. A tariff is totally unpersuasive especially in light of the comparative trade dynamics.
I think it’s prudent to see what damage the actions of Canada, Mexico, and China can do with regards to economic retaliation and if they need to iterate accordingly.
I think Canadians are more likely to find themselves in a situation in which all of their land is owned by Chinese and other foreign interests than an occupation by the U.S. that requires "insurgents", and it seems like they are happy to do it.
I fear that in hoping cooler heads will prevail, you've only set yourself up for failure. Trump and Musk will take advantage of your willingness to see them as better than what they are. That's how they win. Just remember they are doing Nazis salutes and setting up a concentration camp in Cuba. There are no more cooler heads.
Well, that's nonsense. No one is doing "Nazi salutes" nor setting up concentration camps. I mean if the ADL say it was not such a salute, methinks thou doth protest too much. As far as concentration camps, this is just leftist hyperbole. Visit Germany and Poland go see what real such things were like, this is more offensive to those victims of atrocities then the made up things you are referencing.
Musk literally did a Nazi salute behind the presidential seal. And Trump announced concentration camps at Guantanamo Bay, so you're wrong there as well. I'm not getting my news from leftists, I'm getting it from the two co-presidents. You just have to watch what they do and say in public to come to these conclusions.
Again, the ADL literally said it was not such a salute. Also, those are not concentration camps of the kind of Nazi Germany. This is highly offensive to those that suffered in the holocaust to conflate these things.
"Also, those are not concentration camps of the kind of Nazi Germany. This is highly offensive to those that suffered in the holocaust to conflate these things."
Yeah, they are like 1933 Nazi camps, not 1945 Nazi camps...
The road to Nazi Germany was paved by people, like you, who looked at the obvious and dismissed it as hyperbole until the truth became unbearable. You're literally that guy in the "are we the baddies?" meme.
They are doing Nazi salutes and setting up out-of-country concentration camps to which they will send individuals they deem "illegal" who have been labeled by the head of state to be "poisoning the blood" of our nation.
This sentence is true in America today, and in 1933 Nazi Germany.
As for anyone who is offended, send them my way and they can give me an earful, and we can talk it out. But when I see a Nazi salute, I'm calling it out; I don't care who it offends.
The world is transitioning from a "rule of law" order to a "rule of jungle" order, where might makes right.
People who understand this will have an easier time in the new world order. The goal now is to make it through the inevitable war, and try to set up a better rule of law next time.
Canada is the first test. The way to handle America is to use the only language bullies know: force and strength. Never back down. Never give an inch. If Canada tries to negotiate, it's done. Whatever agreement is reached, America will renege, and Canada will lose.
The problem is that the USA is capable of far more force and strength than Canada is. It's like an abusive relationship, but one where due to geography, Canada cannot simply leave.
I blame Canadian leadership. There should have understood the risk long ago. There are other problems as well due to weak management.
The claim about drugs is a legal justification for the use of emergency power. Canada isn’t causing problems for US. These tariffs are harmful and unfair to Canada.
Canada’s leadership could have done better in the past decades (not that they are directly responsible for these tariffs).
* Canada funds and invents new technologies in early stages, but fails to commercialize them: AI, smartphones, pharmaceuticals, …
* Canada hasn’t introduce measures to retain its talent. It’s too easy to be trained in Canada and work in USA.
* Canada hasn’t diversified its trade. It exports around 80% of exports to a super power, putting itself in a vulnerable position.
* Canada’s economy focuses on natural resources, oil, finance and services. It should do a better job in more productive sectors (tech, manufacturing, etc).
* Canada’s immigration is insane.
* The housing crisis, inflation, reduced GDP per capita and productivity are the result of poor management.
* Canada should stay neutral with respect to internal politics of major powers. The power swings, and liberals should not speak ill of republicans.
* Canada should meet its NATO commitments. It contributes less than most members. It should think of defense.
* Canada’s universal healthcare system seems to me costly and hard to sustain, and needs to be reformed to lower public costs.
Thankfully, tariffs are delayed, and hopefully will not be slapped back.
I agree with your points in general but I'm still confused - how do you connect any of these to the USA tariffs? I'm specifically asking you how you can justify this statement "I blame Canadian leadership [for the tariffs]."
There's basically nothing that's manufactured only in Canada...
The vast majority of our exports are raw materials, and of our manufactured goods most are foreign multinationals that set up shop to take advantage of our cheap(er) labour versus the US... They can and will move to the US because of these tariffs.
This will decimate our economy and it really feels like Trudeau simply wants someone to blame our shit economic performance on...
Unless the world demand for these raw material goes down or production elsewhere goes up someone will still buy these raw materials. If tarriff is high enough to force US to source from and Canada to sell to more distant places the world will be less efficient.
Hugely important for agriculture, barely produced in the US at all, mostly imported from Canada.
If Canada retaliates by barring or limiting potash exports, it would be so harmful to the American agriculture sector that Trump would go ballistic.
> They can and will move to the US because of these tariffs.
That's a lot easier said than done, and as US policies might change at any time -- it's a coin-flip what'll be the case in four years -- they'll probably just decide to wait it out and let US consumers eat the tax.
Seriously, you might think it's easy to relocate, e.g., a car manufacturing plant, but it sure ain't...
Potash is important yes. Canada also imports a majority of our fruit and vegetables from the US. Over 90% of our leafy greens come from the US. We already have a massive cost of living crisis. And I'm not sure if American commentators have been paying attention to our economy or not but Canada's GDP per capita has gone down for 6 straight quarters.
I don't think anyone is saying it won't hurt Canada; trade wars hurt both sides. The discussion is whether Canada can make it hurt Trumps supporters enough to pressure him to remove the tariffs.
My perspective is as a Canadian. The US GDP per capita is 7% above pre-Covid numbers, Canada's is 2% below. Or you can say our GDP per capita has diverged by 9% since COVID. Canada's cost of living is actually untenable right now. Canada can't hold the line long enough to do anything to the US.
We'll do it for political reasons until the election this year but it's going to decimate our economy even further.
Cost of living in Canada has been untenable for the past decade. The choice is to bend the knee or suffer more with the hopes you’ll at least go down with pride. I have no idea how the hell the government across the border got their citizens to start hating on us within a couple of weeks.
They didn’t. The vast majority of Americans don’t hate Canadians. You don’t need a popular referendum to set tariffs, the president can just do it. One of the many downsides of electing a crazy person as president.
Fair, apologies for having a knee-jerk reaction to it. It just sucks to scroll a tiny bit on forums and get bombarded with pure hate. I understand that it doesn’t represent the majority, but makes you scratch your head and think why so many level headed people are willing to throw away trust that was built throughout decades. Like I get the whole America First approach, and understand the desire to build out the manufacturing locally… but is it worth it to turn away all of your allies and make them get closer with the actual super power that wants to dethrone you?
To be fair Canada and most of the EU haven't come close to fulfillment our NATO requirements since, well, ever. For better or worse most of the free world freeloads off the US' security shield.
Canada is especially egregious, where we have a bunch of tariffs and regulations protecting certain Canadian corporations while expecting the US to protect us and buy our products. All the while smugly criticizing them for it.
> To be fair Canada and most of the EU haven't come close to fulfillment our NATO requirements since, well, ever. For better or worse most of the free world freeloads off the US' security shield.
USA is only country that used article 5. Other NATO countries served USA til now not other way around. But it seems that this will end soon. At least in EU, where pro-Russian parties are gaining power.
US gets unquestionable currency dominance from US' security shield. Don't get me wrong, but if that was a real concern, they would've started the tariff war 4, 6, 8 years ago. Economical and political headwinds are showing potential Chinese dominance across all manufacturing and export industries. This is the actual time when US is being threatened and trying to bully others, because they can't fix the problem themselves.
sentiment differences are powerful though -- some Americans might rally behind Trump, but if cost of living goes up significantly they won't be patient about it, especially given it's clear that Trump started this whole thing.
meanwhile -- excepting those who CAN'T, for whom there may well be govt assistance -- Canadians are angry and will endure (relatively more) pain to prove a point.
not saying I want this outcome, but I think the willingness to endure pain to harm the opposing party is different in each country.
You also have to account for how much Trump cares about his supporters vs how much any Canadian politician with sufficient power to act cares about their supporters. Trump is already elected, so whatever self-interested concern he had for his supporters is gone. I doubt Canadian politicians, with an election looming, are as willing to throw their supporters under the bus.
Say I manufacture a widget in [country]. At present, there is no manufacturer of that widget in the USA. We export to the USA, and now the US importer or distributor pays a ~25% tariff on the declared value to Fedgov. Then that US importer or distributor receives the widgets and sells them. Because its margin is down, it raises its price. Who paid first? The US business that imported the widgets. Who pays in the end? The US customer.
Now say I manufacture some specialty aluminum rods in [country]. We export to a heatsink manufacturer in the US. As they need our rods, they pay the tariffs. Their product is now considerably more expensive and there's more friction in their supply chain.
The only way this ends is with Americans paying more for goods. It could be a lot worse than routine inflation.
The right way to go about things would be to shore up US manufacturing capabilities first, and then utilize tariffs selectively. Right now, there's really no way around foreign inputs in manufacturing and/or wholly foreign-made goods, so there's going to be a lot of pain.