Trump’s Tariff Tirade

Trump’s announcement that he would levy a 25% tariff on all Canadian goods because of the large number of illegal immigrants and fentanyl that was coming across the Canadian border didn’t make a lot of sense. Compared to many other countries, the number of illegal immigrants and fentanyl arriving in the U.S. from Canada is really quite small. So what’s the real reason for this tariff war?

There is very little analysis at this point about what Trump’s real motives are. From a few articles that I have been able to uncover, here is a scenario that provides some perspective. 

Since Trump’s inauguration, there has been a bewildering onslaught of changes brought on through executive orders. One thing to realize about this is that although Trump is basically a black and white thinker who shoots from the hip, the strategy being used is much more sophisticated. It’s called “flood the zone with chaos” and was devised by Steve Bannan. The effect is to keep the opposition off guard and give the impression that Trump is in full power, even though many of his executive orders are blocked by the courts. This is explained in a podcast by the widely followed New York Times podcaster Ezra Klein.
Summary of Flood the Zone

Or you can watch the full podcast
Ezra Klein | Don’t Believe Him

While tariffs are typically used as a lever for negotiation, for Trump they are the point. They are a source of revenue to pursue his vision of a Gilded Age: “Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.”
Trump Tariffs Are Not a Means but an End

One of the things that’s near and dear to Trump is reducing taxes, as he did in his first term. Trump promised tax cuts numerous times on the campaign trail and said that tariffs would cover the cost. In his thinking, “tariff is the most beautiful word there is”.
Trump’s Tax Break Promises

If you look at U.S. imports by country, it’s clear that to raise a lot of revenue Trump would levy a tariff on Mexico, China and Canada.

Top U.S. import trading partners 2023
However, imposing a tariff as a means to increase revenue does not sound good. Trump was probably aware that there is a long history of strong support for free trade by economists, ever since David Ricardo’s theory of comparative advantage in 1817 (for those who remember Economics 100). 

In addition, the tariffs that Trump enacted in his first term had an overall negative impact on the economy. American firms and consumers paid the vast majority of the cost of the tariffs. There may have been some job increases in some of the targeted sectors such as steel, but sectors that relied on imported components and those in export industries faced retaliation from trade partners and were harmed.
Brookings Institution Report on Tariffs 2020

But Trump had an issue that was a winner. He had received a lot of support for his tough stand on illegal immigration and drug traffic crossing the Mexican border. So this became the reason that he was going to levy a stiff tariff on Mexico. It was a simple extension to apply the same rationale to Canada.

But the numbers don’t add up. This analyst comments that Trump’s plan is just weird and doesn’t make any sense.
Why is the U.S. imposing tariffs on Canada?

At the end of the video, there is the suggestion that Trump’s real plan is to put economic pressure on Canada to become the 51st state. 

The U.S. has a history of annexing adjacent territories. In 1845 Texas was annexed from Mexico. This was followed by the 1848 Mexican-American War in which the U.S. took the rest of the land from Texas to California.

And in 1866 a bill was introduced in Congress to annex Canada.


However, the U.S. was just recovering from the Civil War and there was no real appetite for further adventure. The bill was never passed or acted on.
1866 Bill to Annex Canada

Trump has in fact stated numerous times that Canada should become the 51st state. He hasn’t gotten much support for this idea from Canada or from the U.S., except for Canadian shark Kevin O’Leary who probably thinks there’s a great opportunity for him for a deal and he has been promoting the idea of an economic union between the U.S. and Canada. More recently Trump has admitted that although he would “love to see” Canada join the union, he seemed to acknowledge it “would be a long shot.”

On February 3 after meeting with Trudeau, Trump agreed to delay tariffs for 30 days after Trudeau agreed to appoint a fentanyl ‘czar’ and list Mexican cartels as terrorists.
Trump Pauses Tariffs

So what happens in 30 days?

Trump is very erratic and unpredictable but he can’t stand being seen as a loser (Do you remember the 2020 election? Trump never admitted that he lost). He is unlikely to completely back off from imposing tariffs. He’s already raising a number of other issues where he thinks Canada is taking advantage of the U.S. that he wants to rectify.
Trump’s Laundry List

I expect Trump will back off on tariffs that would have a serious impact on the American economy, such as the automotive sector and energy imports, and instead target specific industries, such as Canadian agricultural products and lumber.