On and off again tariffs and trade wars creating uncertainty and business anxiety
How high is up? That was a trick question that my Dad used to ask me when I was a kid.
Of course, the question has no answer or any answer will actually do. The same kind of question applies to trying to negotiate with or contain Donald Trump.
When the “facts” of the trading relationship out of the gate are completely fabricated, it becomes highly challenging for Canada and other countries to determine what Trump actually wants. How high is up? Who knows?
The one thing we do know is that no matter what country he is negotiating with, the negotiation is a zero-sum game. There is no “win-win” in these negotiations; the United States will win and every other country will lose. Or so he thinks.
I suspect that things are about to get a lot more challenging for the average American and a lot more politically tenuous for President Trump when the tariff chickens come home to roost.
The President can tell Americans that China (or any other country that he slaps tariffs on) pays the tariff, but anyone with a basic introduction to economics knows that it is generally the consumer that pays the tariff — or tax — on imports being brought into the United States.
The importer or distributor might eat some of the tariff cost to try and minimize the cost impact on the end consumer but, the reality is that it is the final consumer that pays the bulk of the tariff cost.
With this in mind, the stock-piling of inventory in the United States was a pre-tariff mitigation strategy that many companies across many different sectors utilized.
The challenge, however, is that the pre-tariff inventory is being or has been depleted and consumers will soon be facing a tsunami of tariff price increases on everything from T-shirts to televisions — including automobiles.
This would seem to be why the President is in such a rush to get some of the 45 or so main trade agreements sorted as quickly as possible so that he can wind down the tariffs to a level that is considerably lower than where they are now. Currently, tariffs are being used as a blunt negotiating tool in trade negotiations with other countries to beat them into submission in trade talks.
So what is going to happen on July 9th when the President has threatened to return to the “Liberation Day” tariffs that were initially instituted on April 2 but were quickly followed by the announcement of a 90-day pause on the application of those tariff rates to allow the President the time to negotiate trade deals?
If one had to guess the way this movie seems to go is that he will put the tariffs back up to their April 2nd levels and then bring them back down again once the market has spoken to the foolishness of this approach and the Liberation Day tariffs will be kicked down the road for another 90 days or so.
At the recent G7 meetings held in Canada, the Prime Minister and the President had agreed to the essence of some kind of trade and security arrangement, the details of which have been kept out of the public eye.
However, not one to let a good trade discussion get in the way of an opportunity to be capricious and vengeful, the President announced on Friday, June 27th that he was suspending all trade talks with Canada because of the application of Canada’s Digital Services Tax (DST) to the American tech giants.
Canada immediately saw its currency drop in value and optimism about the Canadian economy fall. And against this backdrop the President has also threatened to increase tariffs against Canada.
The unfortunate part of all of this volatile on again/off again tariff policy is that it has started to make the U.S. an untrustworthy trading partner and all of this ongoing uncertainty is stifling business investment globally because no one knows when it is going to stop.
Does anyone know how high is up?
On Sunday June, 29th, it was announced that Canada had agreed to remove the DST, which is unfortunate because caving into these tactics only emboldens the President to use them more.
Look for Canada’s dairy quota system to be the next issue in his cross-hairs. And the auto industry may not be too far behind as Trump has threatened once again to increase the auto tariffs.
The tactics in all of this whether auto tariffs, steel and aluminum tariffs or the other tariff measures is to inflict so much pain that the Canadian government essentially tosses in the towel.
We cannot and should not do that. We have a limited number of cards that we can play with the U.S. in trade negotiations. At the moment we seem to be giving away the cards we have to address immediate issues without thinking about the fact that we have a USMCA/CUSMA review coming up in July 2026. In that review, we can expect that for the auto sector the U.S. will be looking for much higher North American content requirements (if not very high U.S. only content) and we need to be in a position where we have at least some cards to play for those battles as well.
