Donald Trump doubles down on his dumb tariffs

Score one for Ontario Premier Doug Ford. His retaliatory tax on electricity exports may have drawn the ire of Donald Trump, but they also appear to have brought the Americans to the negotiating table. On Tuesday, he and Commerce Secretary Howard Lutnick signed off on a joint statement announcing the temporary suspension of Ontario’s electricity surcharge pending trade talks between the two countries. 

Now, the truly hard work begins. Canada’s trade negotiators will have to find a way to bring the Americans back to reality on a bunch of key issues, from how certain sectors like dairy are regulated to the very nature of how trade deficits work. It’s not clear whether that’s even possible at this point — or if it is, who’s best equipped to do it. Canada’s negotiators will have to play the roles of fact-checker and educator, in addition to their usual job defending our economic interests, and they will be faced with an administration that has even less regard for the facts than it did the last time around. 

Take the complaints that Trump and his eager proxies have made recently about the tariffs Canada levies on imports of dairy, poultry and eggs, that can reach as high as 300 per cent. “Canada has been ripping us off for years on tariffs for lumber and for dairy products,” he told reporters last week in an Oval Office conversation on the economy. “Two hundred and fifty per cent, nobody ever talks about that 250 per cent tariff, which is taking advantage of our farmers.”

What he neglected to mention was that these tariffs only kick in after a certain quantity of tariff-free dairy sales are reached, a number negotiated by Trump and his trade team. More to the point, perhaps, the U.S. isn’t hitting the maximum zero-tariff volume in any category of dairy imports, and isn’t even at half the level when it comes to milk. And guess what: America has a very similar policy of so-called “outside quote tariffs” when it comes to how it treats dairy imports. 

Trump also claimed that Canada’s tariffs on dairy imports rose under his predecessor, which is, as you may have guessed, also factually bankrupt. In reality, the very tariffs he’s complaining about were negotiated by Trump and his team in 2018’s USMCA, which he has repeatedly described as “the best trade deal ever made.” One wonders if anyone in his White House has tried pointing that out to him yet. 

But if Trump’s comments about dairy are dumb, his threat to increase the tariff on steel and aluminum imports from Canada are self-defeating. Demand for both steel and aluminum massively outstrips domestic production capacity, which means the U.S. manufacturers who rely on steel and aluminum to build their products — you know, like the auto industry Trump claims to care about — will simply pay a far higher price for their supplies. As Brad Setser, an American economist and former U.S. treasury employee, pointed out on social media, “​​raising the price of industrial inputs (like Canada's low carbon aluminum) makes U.S. downstream industry less competitive.” 

Whoops. 

Indeed, as Setser pointed out, if Trump is genuinely interested in reindustrializing the United States, a tariff on Canadian exports of steel, aluminum, and oil is directly at odds with that goal. The United States already runs a trade surplus with Canada when it comes to manufactured goods, and policies that raise their cost will only encourage Canadian customers to look elsewhere for them. “Canada is the wrong target, as it is in fact a good market for U.S. manufactures,” Setser said. “The best in fact.” 

In fairness, this level of nuance and detail might be too sophisticated for the Trump universe. Commerce Secretary Howard Lutnick has repeatedly suggested that tariff revenue could be used to eliminate income taxes in the United States, which doesn’t make any sense if you bother to think about it for even half a second. Replacing the more than $3 trillion in income tax revenue would require tariffs on all imports as high as 200 per cent, which would lead to a quadrupling of the cost of everything from energy to electronics. If Trump wanted to deliver Argentina-style inflation, this would be a good way to do it. 

Even if Americans were willing to endure this sort of economic pain (they aren’t), and the tariff policy successfully drove investment and job creation into the United States (it wouldn’t), it would massively reduce America’s imports of various goods — and the tariff revenue it theoretically generates. If there was a Nobel Prize for dumb ideas, Trump’s trade war would be a lock for it. 

At its core, this is all about something more basic: Trump’s belief that other people are ripping him off. Freudian analysts could have a field day with this, given the obvious projection at work here, but that phrase keeps popping up whenever Trump or anyone in his employ talks about trade. As Trump press secretary Karoline Leavitt said this week, “Tariffs are a tax hike on foreign countries that are ripping us off and a tax cut for the American people.” 

They aren’t, of course. But facts have about as much influence over what happens inside Trump’s White House as Hillary Clinton and Barack Obama do right now. If we’re lucky, our skilled trade negotiators will be able to convince Trump’s people to back their way into some version of reality — one that will surely be described by them as the greatest trade agreement in the history of human civilization. If we’re not, everyone’s about to find out just how expensive stupidity can be.