The Brewing Trade War Between The U.S. And Canada Is Utterly Pointless

The brewing trade war between the U.S. and Canada will damage both countries. Such a conflict is utterly pointless. An immediate “ceasefire” is imperative.

Tariff is another word for tax. Last month, President Trump slapped an arbitrary 50% tax on a variety of Canadian products worth $20 billion, such as wine, hockey sticks, cement, honey, seeds, jewelry and perfumes. The U.S. dredged up a never-used section of the notorious 1930 Smoot-Hawley Tariff Act to justify these new taxes. These exactions will, if necessary, be challenged in court.

The administration is annoyed that Canada didn’t roll over when tariffs against it were enacted last year. But Trump’s July announcement did prompt trade talks between the two countries. A deal looked certain this past weekend until the U.S. demanded last-minute concessions and negotiations collapsed. Canadian Prime Minister Mark Carney declared that his country would retaliate dollar-for-dollar with tariffs to take effect September 8.

President Trump responded that come January 1, he will impose a 50% tax on all autos, trucks and vehicle parts from Canada. Auto parts cross the borders of Canada, Mexico and the U.S. numerous times before being put in a vehicle. That 50% tariff would disrupt existing supply chains and lead to higher prices. So much for affordability.

The renewal of the U.S., Mexico and Canada Agreement (USMCA) is under negotiation. The USMCA is the successor to the North American Free Trade Agreement (NAFTA). It was put together during President Trump’s first term, and he hailed it as the “fairest, most balanced and beneficial trade agreement we have ever signed into law.” With the future of USMCA currently being decided, it’s ridiculous to be having these tariff fights that could escalate into ever more harmful dimensions. And it would be a disaster of the first magnitude if USMCA is not renewed.

The whole U.S. tariff policy has been a net negative by increasing costs and creating uncertainty. Tariffs have been justified to help manufacturing. The damage to American manufacturing was almost entirely self-inflicted from massive and largely unnecessary regulations and excessive taxation.

President Trump slashed the corporate tax rate during his first term and enacted enormous and permanent investment incentives with last summer’s tax bill. He has relentlessly attacked regulations, as no previous chief executive has ever done. Our energy boom is one sensational result. The arrows are impressively up for manufacturing. Without the tariffs, manufacturing as a whole would be up even more.

As for trade deficits, in and of themselves they tell nothing about a country’s economic health. The U.S. has had trade shortfalls for most of its existence. We had trade surpluses during the Great Depression, when unemployment peaked at 25%.

What gets overlooked is the basic fact that a trade deficit is matched by a capital surplus. In other words, the dollars spent for a bottle of perfume from Canada come back to the U.S. one way or the other. They’re not put under a mattress.