U.S. President-elect Donald Trump talks with Prime Minister Justin Trudeau during the plenary session of the NATO summit at the Grove hotel in Watford, northeast of London, on Dec. 4, 2019.NICHOLAS KAMM/AFP/Getty Images
As the whole world knows by now, Donald Trump plans to impose a 25-per-cent tariff on all imports from Canada and Mexico on his first day in office.
His announcement on social media sent Ottawa into near panic mode, with an emergency Commons debate, an urgent first ministers’ meeting, and a clandestine trip to Mar-a-Lago by the Prime Minister and a few top aides.
The hope is that Mr. Trump’s announcement is a negotiating ploy designed to pressure Canada and, especially, Mexico to get tougher on illegal immigration and cross-border drug smuggling.
That may be the case, but the odds are that Mr. Trump will do exactly what he says on Jan. 20, the day he is sworn in.
The reason is simple: to back down would make him look like a loser to some of his followers. Mr. Trump hates losers. To be seen as one is anathema to him.
Reread his Truth Social post. “On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25-per-cent Tariff on ALL products coming into the United States, and its ridiculous Open Borders,” he wrote.
Not “might sign” or “will consider signing” but “will sign.” No wiggle room there. Yes, he tied the decision to two non-trade issues. But it would look like a cop-out if he were to suddenly proclaim that the immigration and drug issues had been magically solved in less than two months, allowing him to shelve the idea. The last thing he wants is to look like he is vacillating on his first day back in the White House.
The media and our politicians have repeatedly called this a “threat.” It’s not. It’s a promise. This is not a question of semantics. There’s a huge difference between “threatened” and “promised.”
So, I expect the tariffs will be imposed. There will be howls of protest, not just from Ottawa and Mexico City, but also from a range of angry Americans from car manufactures to the oil industry. Mr. Trump won’t care. He never does.
The real question is, how long will the tariffs remain in place? Having kept his promise, I suspect Mr. Trump will quickly find reasons to carve out certain sectors. The first will probably be oil. A 25-per-cent tariff will immediately drive gas prices higher. That won’t sit well with his base, which elected him partly because voters were fed up with inflation. Oil tariffs would also put pressure on U.S. refineries that process Canadian crude, endangering Mr. Trump’s goal of American self-sufficiency.
I can see other carve outs quickly following, especially in the agriculture sector. Manufacturing, especially auto parts, is another matter. It seems that Mr. Trump’s ultimate objective is to concentrate most or all U.S. car production within U.S. borders. That’s not likely to happen given the integrated state of the industry across North America. But that doesn’t mean he won’t try.
I think the market is assuming the tariffs will not be as onerous as Mr. Trump has promised because there is no economic logic to go that route. If Mr. Trump were a logical person, I’d agree. I don’t think he is.
There is no doubt that a sustained tariff program would deal a serious blow to the Canadian economy. Stephen Tapp, chief economist at the Canadian Chamber of Commerce, said last week that a 25-per-cent tariff on all Canadian imports could push Canada into a recession by the middle of 2025.
The Chamber calculates that, if implemented, the plan would shrink Canada’s GDP by 2.6 per cent (roughly $78 billion), costing Canadians approximately $1,900 per person annually.
But it would hit Americans too. Their GDP would fall 1.6 per cent (about US$467 billion), costing individuals approximately $1,300 per person every year.
“Make no mistake, if Trump imposed these tariffs, it would represent a significant negative shock to the US economy,” Mr. Tapp said. “It would raise costs for businesses, make American production less competitive internationally, and raise prices even more for consumers who’ve recently suffered through the pandemic and the highest inflation in generations.”
If this analysis is anywhere near accurate, Mr. Trump will have to reverse course at some point. But he will want to claim some kind of victory to save face. Canada and Mexico should do everything possible to achieve help him achieve that goal.
This is the key to working our way through the challenges of the next four years. Donald Trump is an egotistic narcissist. If we can swallow hard and play to his arrogance, we should be able to muddle through his term. As for the years beyond that – well, incoming vice-president J.D. Vance strikes me as being smarter and certainly smoother than Mr. Trump. This may be a long haul.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
Read more from Gordon Pape: The Trump effect on your portfolio: Four moves for investors to consider making now
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