Trump tariffs will cause a lot of pain for potential gain

There's no guarantee companies will build in the U.S. as a result of tariffs, but prices for consumers will only increase.

Coutts Border Crossing, Alberta. Credit: mycrestonnow.com

Whether Canada is about to be dragged kicking and screaming into a trade war or not doesn’t change the fact that the threat of a trade war is causing business and investment uncertainty.

Neither of these things is good for the Canadian economy, especially in terms of foreign investment, but there has been some hope coming from those who would like to become Canada’s next Prime Minister.

I’m not going to pretend that I think anyone other than Mark Carney and Pierre Poilievre are serious contenders for the position and my reasoning is that if Chrystia Freeland wins the liberal leadership race, though she would become Prime Minister briefly, I feel certain she would easily lose the title to Mr. Poilievre in the general election that immediately follows; but that’s an argument for another day.

Both Mark Carney and Pierre Poilievre have been talking about building here at home. Mr. Poilievre says he wants to remove regulations and push provinces to open up resource development across the country, and Mr. Carney wants to focus on clean energy and AI, as well as changing the relationship government has with business.

The federal government, in the meantime, says it’s planning a pandemic-like safety net for employees and employers whose industries are hit hardest by the Trump tariffs, which White House Press Secretary Karoline Leavitt said Tuesday was “still on the books” for February 1.

Alberta Premier Danielle Smith still remains against retaliatory tariffs, and hasn’t suggested she has a plan for how Alberta will manage once they’re in effect, aside from using them to get reduced regulations for oil and gas.

Energy producers on both sides of the border have been lobbying for Alberta’s oil sector, with the American Petroleum Institute (API) sending a recent letter to the Trade Commission, which suggests they’ve yet to get a response they are happy with.

In their first request for carve-outs, back in December, the API asked for a carve-out on products the country cannot source domestically — like Alberta’s heavy crude. The article also includes a bizarre quote from Mr. Trump bragging that oil prices will come down thanks to his “drill, baby, drill” policy; “If they drill themselves out of business, I don’t give a damn,” he said at a rally in October 2024.

Except, that’s not how the oil industry does business.

Mr. Trump recently told the World Economic Forum that he will be asking “Saudi Arabia to bring down the cost of oil”. Saudi Arabia brings down the cost of oil by increasing production which causes massive price drops and oil companies can no longer afford development costs (see; 1980’s oil glut, 1994, 2008, 2014, 2016, and 2020). They don’t “drill themselves out of business” — they reduce development (read: jobs) and production rather than sell more at lower prices.

Just add it to the list of Trump policies that don’t make any sense.

In a spat with Colombia over the return of Colombian migrants on Sunday, Mr. Trump threatened to slap 25 per cent tariffs on the country’s exports to the U.S. and increase them 25 per cent per week until Colombia agreed to welcome the migrants back. Colombian President Gustavo Petro responded with a tariff of his own saying, among other things, “I am informed that you impose a 50% tariff on the fruits of our human labor to enter the United States, and I do the same. Let our people plant corn that was discovered in Colombia and feed the world!”

The Trump administration backed down and agreed to send Colombian migrants back to the country unshackled and in passenger, rather than military, planes.

Mr. Trump has said that the countries who trade with America will pay the tariffs. The only way it makes sense is if you liken it to how merchants pay for a booth at exhibitions to sell their wares. The event organizers book the space, and pay for event marketing. They, in turn, sell booth space to those who want access to the buyers the organizers are trying to bring into the event. It seems like the plan is to have countries who trade with America pay for the privilege of selling to them.

Again, this is not what will happen on February 1. Canadian businesses are not pushing their wares on Americans, or “hoping” they will buy them. Rather, in the highly integrated trading system that has built up over the past century, American companies order what they need from Canadian companies, and Canadian companies send it.

If Canadian companies have to pay additional costs to do so, that cost will be added to the bill of the requesting company, the additional cost of which will then be passed down as an increase to the cost of those items for sale.

There’s no way around increasing the cost and expecting the end consumer not to bear it.

Again, if the goal is to encourage companies to relocate, or start building their own products in the U.S., it’s a fine one for them — but it won’t happen by February 2. GM built its auto manufacturing plant in Mexico in four months and had its first fully-assembled vehicle out the door five months later — in 1937. They could do the same, perhaps, in the U.S., which would still not be ready to replace Canadian manufacturing on February 1.

They can’t drill their own heavy crude because they don’t have any. If they aren’t getting it from the pipes that go directly to the refineries now, they can order it from Venezuela, which is almost like a tariff once you add in shipping costs and time.

The only thing the Trump tariffs will do is make life more expensive for Americans immediately, in the hopes that there will be more jobs, and more production, that will reduce the cost of living at some point in the future.

So far, the governors and senators with guaranteed paycheques are willing to support the plan, but it also relies on companies making the investments to build in the U.S. what they already have elsewhere, rather than try to outlast American politicians who have to answer to angry Americans about why the costs are going up, not down.

Sure, there’s 340 million people in the U.S., but there’s 6.7 billion people outside of it, too, if we’re talking market share.

While it’s difficult to say Mr. Trump’s plan is a good one, there is one thing we can be certain about: the United States is showing the world that its leadership can no longer be trusted.

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