After campaigning on not wanting to start or escalate kinetic wars, Trump looks to be trying to compensate for US military weakness (as in inability to seriously beat up anyone bigger than an insurgency) by launching a massive, multi-front economic war via 25% tariffs on Mexico and Canada (ex oil), our biggest trade partners, and a further 10% increase in tariffs on our #3 trade counterpart, China. For China, an additional Trump blow is ending the “de minimus” exemption for shipments under $800, which Chinese vendors like Shein had taken advantage of to sell directly to US customers.1 Trump has threatened to impose tariffs on the EU too, which has already said it would “respond firmly”. 2
We will first sum up the state of play, and then turn to the looming question: since all experts and businesspeople, save those on the extreme lunatic fringe, know that tariffs increase product costs, which are either passed on to consumers or eaten by suppliers, can cause shortages, otherwise disrupt supply chains, and (in mature economies) are a very very expensive way to create jobs and have had little success in increasing domestic production in the US, what does the Trump team think they will accomplish?
First, a short overview. Note Canada and Mexico have already announced that they are retaliating. China so far has only said it will sue the US in the WTO, which is a wet noodle lashing, but expect more soon. The Financial Times’ overview:
Donald Trump hit Canada, Mexico and China with steep tariffs on Saturday in a move that launches a new era of trade wars between the US and three of its largest trading partners.
Trump issued an executive order applying additional tariffs of 25 per cent to all imports from Canada and Mexico, with the exception of Canadian oil and energy products, which will face a 10 per cent levy. Canada is by far the biggest foreign oil supplier to the US, accounting for about 60 per cent of its crude imports.
Imports from China will face a 10 per cent tariff over and above existing US tariffs…
The tariffs would apply from Tuesday, the White House said.
An administration official said each order contained “a retaliation clause . . . so that if any country chooses to retaliate in any way, the signal will be to take further action with respect to likely increased tariffs”.
In response, Canada’s Prime Minister Justin Trudeau announced 25 per cent tariffs on C$155bn (US$107bn) worth of goods, including US alcohol, clothing, household appliances and lumber…
Mexico’s President Claudia Sheinbaum said the country would also launch retaliatory tariffs and other measures.
It’s far too early to know what the economic effect will be; the impact of the tariffs imposed during the first Trump Administration was marginal due to how few they were and still debated.3 But it takes a lot of, erm, creativity, to depict them as a plus for citizens.
Due to the lousy state of search on Twitter and the Wall Street Journal’s own site, I am unable to again find a useful, high level background video on tariffs. It included detail on how the first term Trump tariffs achieved very little, creating hardly any jobs (<2,000) then at a very high prices, as well as some unexpected additional costs (more expensive clothes driers even though driers were not subject to tariffs). It also pointed out, with examples, that tariffs, once imposed, are rarely reverses since they create their own constituencies. However, claims that tariff costs will be passed on to consumers are simplistic. Even though during the Biden inflation, some companies that weren't seeing cost pressures also put through price increases, in so-called "greedflation" (we have an example of the same sort of conduct during the first term Trump price increases). However, MarketWatch reported that in 2024, on the 70 SKUs they tracked across retailers, the number of price reductions slightly exceeded increases. Critically, WalMart had started rolling back prices to gain market share.
Given how much food the US imports from Mexico and which products are most price inelastic, it seems likely that consumers will be subjected to price increases in food and other small ticket and/or essential items. This will hit already-budget stressed low and middle income consumers. Many outlets are confirming the obvious, that food costs will rise. From Reuters:
Tariff-related price increases would hit consumers’ wallets at a time when beef prices are near record highs and costs for eggs have climbed after bird flu eliminated millions of egg-laying hens. Bird flu cases in dairy cows have also reduced milk output in top-producer California….
The United States imported $195.9 billion of agricultural goods from suppliers around the world in 2023, according to U.S. Department of Agriculture and U.S. Customs data. That included nearly $86 billion from Mexico and Canada, the top two suppliers representing 44% of the total.
Up to 40% of fresh produce sold in U.S. food stores is imported, according to the National Grocers Association.
“We import most of our fresh fruit and vegetables from Mexico and Canada….” said Rob Fox, an economist and director of CoBank’s Knowledge Exchange….'”I can’t go out and plant tomatoes in Illinois in January and hope to replace them.”
About two-thirds of U.S. vegetable imports and half of its fruit and nut imports come from Mexico, according to the USDA. That includes nearly 90% of its avocados, as much as 35% of its orange juice, and 20% of its strawberries…
The threat of tariffs alone can be inflationary, said David Ortega, an economist at Michigan State University.
“Food companies are scrambling to come up with contingency plans…that adds cost to their operations,” he said.
The U.S. normally imports more than 1 million cattle from Mexico annually, though Washington has blocked shipments since late November due to the discovery of a pest in Mexico.
Canadian cattle also are shipped into the U.S. to be fattened and slaughtered. Tariffs or trade disruptions could affect products ranging from ground beef to steaks, analysts said…
“If it goes through anything like threatened, it will definitely push U.S. beef prices up significantly higher,” he [Bob Chudy, a consultant for beef importers] said of tariffs….
Prices for the hamburger meat are up 42% from four years ago.
To get more of a flavor of the breadth of the impact:
"It seems like virtually every sector of the American economy" — Fox News has put together a scrolling list of the "goods affected by Trump tariffs" 😬 pic.twitter.com/nofdk3IrEZ
— Aaron Rupar (@atrupar) February 2, 2025
I have yet to see this Trump remark confirmed, but the flip side is the US is very dependent on China for pharmaceutical inputs and even drugs, and I did not see pharmaceuticals carved out in any of the writeups on the new tariffs levied on China:
Jesus Christ.
Donald Trump says he is going to put tariffs on pharmaceutical drugs.
This will literally kill people.
— CALL TO ACTIVISM (@CalltoActivism) January 31, 2025
Another big tariff-hit category is building materials, such as Canadian lumber. I am not able to gauge how price sensitive those goods are (and obviously some are more so than others). But new home sales are already showing signs of price pressure, as Wolf Richter discussed in the past week: Inventory of New Completed Single-Family Houses for Sale Spikes to Highest since 2007. Builders Prop Up Sales with Lower Prices, Bigger Incentives, Smaller Houses.
One big sector that is likely to see the crunch on the manufacturer side is autos. If you eyeball recent import data from Mexico, cars and auto parts look to constitute about 1/3. But the volumes don’t give an full picture of the impact. From the Wall Street Journal:
Take the U.S. auto industry, which is really a North American industry because supply chains in the three countries are highly integrated. In 2024 Canada supplied almost 13% of U.S. imports of auto parts and Mexico nearly 42%. Industry experts say a vehicle made on the continent goes back and forth across borders a half dozen times or more, as companies source components and add value in the most cost-effective ways.
And everyone benefits. The office of the U.S. Trade Representative says that in 2023 the industry added more than $809 billion to the U.S. economy, or about 11.2% of total U.S. manufacturing output, supporting “9.7 million direct and indirect U.S. jobs.” In 2022 the U.S. exported $75.4 billion in vehicles and parts to Canada and Mexico. That number jumped 14% in 2023 to $86.2 billion, according to the American Automotive Policy Council.
American car makers would be much less competitive without this trade. Regional integration is now an industry-wide manufacturing strategy—also employed in Japan, Korea and Europe—aimed at using a variety of high-skilled and low-cost labor markets to source components, software and assembly.
The result has been that U.S. industrial capacity in autos has grown alongside an increase in imported motor vehicles, engines and parts. From 1995-2019, imports of autos, engines and parts rose 169% while U.S. industrial capacity in autos, engines and parts rose 71%.
As the Cato Institute’s Scott Lincicome puts it, the data show that “as imports go up, U.S. production goes up.” Thousands of good-paying auto jobs in Texas, Ohio, Illinois and Michigan owe their competitiveness to this ecosystem, relying heavily on suppliers in Mexico and Canada.
US and European automakers were already running up against the limits of affordability. For instance, from Newsweek in early 2024, in Americans Can No Longer Afford Their Cars:
Both new and used car prices rose to record highs during the pandemic, as the car industry was experiencing supply chain disruptions and chip shortages. Since 2020, new car prices have risen by 30 percent, according to data shared by AI car shopping app CoPilot with Newsweek. Within the same timeframe, used car prices have jumped by 38 percent….
…cars are still really expensive for many Americans. Just 10 percent of new car listings are currently priced below $30,000, according to CoPilot. Things are not much better in the used car market, where only 28 percent of listings are currently priced below $20,000.
According to an October report by Market Watch, Americans needed an annual income of at least $100,000 to afford a car, at least if they’re following standard budgeting advice, which says you shouldn’t spend more than 10 percent of your monthly income on car-related expenses.
That means that more than 60 percent of American households currently cannot afford to buy a new car, based on Census data. For individuals, the numbers are even worse, with 82 percent of people below the $100,000 line.
The budget squeeze was already hitting sales volumes and pricing as reflected in the level of discounting rising markedly in 2024 over 2023. As readers likely know well, US officials aggressively reject cheap and cheerful Chinese EVs as a solution. That’s before getting to the fact that major automakers, namely Nissan, the Stellantis combine, and Volkswagen are in wobbly shape. Their ability to put through price increases without losing sales is limited.
And there’s a precedent for the Trump tariffs leading to bailouts:
One of Trump's main (purported) goals with tariffs is to pay for tax cuts in the TCJA. But as @BennSteil and @bdellarocca found, when Trump imposed tariffs in his first term, *92%* of that tariff revenue went into bailing out farmers, not paying down the deficit. pic.twitter.com/o4pkqR3gA0
— Ryan Cummings (@weakinstrument) February 1, 2025
Even Trump has admitted that his tariff regime will hurt American but is trying to spin this bug as a feature, and even more insultingly, a noble sacrifice. From The Hill,This will be the Golden Age of America! Will there be some pain? Yes, maybe (and maybe not!). But we will make America great again, and it will all be worth the price that must be paid. We are a country that is now being run with common sense — and the results will be spectacular!!!”
Some contacts on the right wing (who acknowledge that keeping the tariffs on would harm a lot of American consumers and businesses) are spinning that Trump will keep them on only for a short while, that this is yet another bluster/bargaining chip. The problem is he’s blustering with a loaded AK-47 while not observing any gun safety protocols.
Trump may indeed feel emboldened by how his tariff threat agains Colombia regarding its refusal to take military jets carrying deportees lead to a quick climbdown.4 But his demands of Canada and Mexico are unreasonable, and also so extreme that it’s hard to see what his fallback would be.
BREAKING: Trump just posted this wild take.
It looks like he's using tariffs to pressure Canada into becoming a U.S. state. Yes, really.
Why would Canada ever trade universal healthcare, lower crime, and fewer insurrections for that deal? pic.twitter.com/rBgprgInPp
— Brian Krassenstein (@krassenstein) February 2, 2025
The Trump tariffs are such an obvious lose-lose that they’ve achieved the seemingly-impossible task of reversing the terminal slide in prime minister Justin Trudeau’s reputation, as well as solidifying Canadian opposition to other forms of US economic imperialsm.
Canada’s response to U.S. tariffs. Justin Trudeau's best speech.
Canada will place 25% tariffs on $155 billion in US imports in retaliation for Trump tariffs. That is an addition to a nationwide boycott on all US products across Canada. #cdnpoli #tariffwar pic.twitter.com/VJavxmO6nH
— Anonymous (@YourAnonCentral) February 2, 2025
Mark Carney, an unusually Serious Economist by virtue of having been both the governor of the Bank of Canada and then the governor of the Bank of England, advocated Canada imposing dollar for dollar retaliatory tariffs:
The tariffs imposed by the United States today are a clear violation of our trade agreements and require the most serious trade and economic responses in our history.
See my statement: https://t.co/vB8loUKoSY pic.twitter.com/e5IRJLIwwM
— Mark Carney (@MarkJCarney) February 1, 2025
Reader johnnyme posted a link showing that Canada was still formulating its list, as the wags said the priority would be to hit red states hardest:
The first phase of our response will include tariffs on $30 billion in goods imported from the U.S., effective February 4, 2025, when the U.S tariffs are applied. The list includes products such as orange juice, peanut butter, wine, spirits, beer, coffee, appliances, apparel, footwear, motorcycles, cosmetics, and pulp and paper. A detailed list of these goods will be made available shortly.
Minister LeBlanc also announced that the government intends to impose tariffs on an additional list of imported U.S. goods worth $125 billion. A full list of these goods will be made available for a 21-day public comment period prior to implementation, and will include products such as passenger vehicles and trucks, including electric vehicles, steel and aluminum products, certain fruits and vegetables, aerospace products, beef, pork, dairy, trucks and buses, recreational vehicles, and recreational boats.
In his speech, Trudeau not only announced retaliatory tariffs, but also urged consumers to boycott US goods. That seems to be getting traction:
🚨 It’s Tariff Day — Here is how you can replace American Brands with 🇨🇦Canadian Brands.
Save the image and Take this shopping 🛒 #shoplocal #ShopWisely #buycanadian #shopCanadian #ilovecanada pic.twitter.com/L3YJ4c5rr5
— Carbon Tax Johansen🇺🇦🇨🇦🏳️🌈🇵🇸🎾 (@johangreg) February 1, 2025
a local grocer was quick to display #MadeInCanada signs to help shoppers like me choose 🇨🇦 items, not 🇺🇸. how we roll against #tariff madness. feel good that so far in 2025 I’ve gone Amazon-free. now I see that my fave coconut yogurt is Canadian!
🍁 C-A-N-A-D-A 🍁 pic.twitter.com/kSBEqXoR16— Raffi Cavoukian (@Raffi_RC) February 1, 2025
As for Mexico, Trump’s economic war casus belli is that Mexico needs to be more to curb fentanyl coming into the US and stop the entry of migrants. Gee, so why is Trump a crypto tout, when the use of crypto enables crime, particularly drug trafficking? Sadly, otherwise sane people I know maintain that the Mexican government is controlled by gangs, and by implication, Trump-tariff-induced regime change is warranted.
This program is so deranged, particularly in combination with the other intended Trump economic shock of radically cutting or otherwise disrupting Federal funding of all sorts of activities that one has to wonder if Trump is trying to create a US version of the neoliberal shock Russia suffered in the 1990s, which allowed mere mortals to become obscenely rich by hoovering up distressed assets.5
While this sort of pillaging may be what eventually results, this instead seems to be the result of libertarian extremists getting their way, combined with undue faith that taking linear steps will produce the desired outcomes. Long-standing readers may recall how we have often discussed the principle of obliquity. In highly complex systems, and the US economy and the global trade system qualify, the terrain can’t be mapped accurately. Trying to navigate simple paths through it results in worse outcomes than setting high level objectives and adapting as you move forward.
Musk’s cost cutting at Twitter provides an illustration. And keep in mind that Twitter is vastly less complicated than either the Federal government or the trade system. From Techdirt (hat tip Paul R):
Remember how Elon Musk destroyed Twitter by ripping apart its infrastructure without understanding it? Now imagine that same playbook applied to the federal government. It’s happening, and the stakes are exponentially higher. When reviewing Kate Conger and Ryan Mac’s book “Character Limit” last fall, I highlighted two devastating patterns in Musk’s management: his authoritarian impulse to (sometimes literally) demolish systems without understanding them, and his tendency to replace existing, nuanced solutions with far worse alternatives (even when those older systems probably did require some level of reform). Those same patterns are now threatening the federal government’s basic functions…
At Twitter, Musk’s “reform” strategy transformed a platform used by hundreds of millions for vital communication into his personal megaphone, hemorrhaging somewhere between 60-85% of its revenue in the process.
The article describes some of the clearly unqualified DOGE staffers turned loose to fiddle with dials, including a 21 year old who worked for Palantir, a 2024 high school grad, and a lawyer who had the NRA as a client.
Techdirt provides more unsavory details, such as:
Then, later today [January 31], Reuters reported that Musk’s aides have locked career civil servants entirely out of government computer systems.
Aides to Elon Musk charged with running the U.S. government human resources agency have locked career civil servants out of computer systems that contain the personal data of millions of federal employees, according to two agency officials.
[….]
The systems include a vast database called Enterprise Human Resources Integration, which contains dates of birth, Social Security numbers, appraisals, home addresses, pay grades and length of service of government workers, the officials said.“We have no visibility into what they are doing with the computer and data systems,” one of the officials said. “That is creating great concern. There is no oversight. It creates real cybersecurity and hacking implications.”
Officials affected by the move can still log on and access functions such as email but can no longer see the massive datasets that cover every facet of the federal workforce.
Only one of the four DOGE suits sought an injunction and it evidently was not granted. Lambert will have more to say in a post later today, but calling the Trump regime a coup is no exaggeration. I hope you can position yourself to minimize the exposure.
_____
1 I have not been able to tell from media accounts the revocation of the “de minimus” exemption is limited to the countries just now being hit with new or higher tariffs, or is an across-the-board change. Matt Stoller has a very good writeup in his latest issue of his BIG newsletter and says the change is not exactly about the “de minimus” exemption but that it applies only to Mexico. Canada, and China. However, I would not bet on this being what happens in practice. We’ve repeatedly seen Trump operatives acting well beyond what his executive orders stipulated, starting with DOGE, with additional Keystone Cops level confusion about their application. From Stoller:
Trump has done something that liberals have long advocated, which is to suspend part of what’s called the “de minimis” loophole, an exemption that a person can import up to $800 into the U.S. every day duty free and largely uninspected. If you’ve ever been abroad and bought something as a tourist, you’ve had the experience of flying back to the U.S. and writing down on a form in the airplane what you bought. If it’s above $800 you have to go to a special place and pay duties, if it’s below that you don’t. That’s what de minimis was for.
Commercial importers didn’t use de minimis. Instead, they used “Formal Entry,” which, as it sounds, is far more structured to allow American customs officials to track what’s coming into the country. A commercial importer had traditionally bought in bulk, shipped those goods into the U.S. usually on a container ship or semitruck, and was required to use a licensed customs broker to manage the process. Say you were a bicycle wholesaler. You’d import a thousand bikes wholesaling at $300 from Taiwan or China. You would then list the tariff code of bicycles on your boxes, pay duties, have a licensed customs broker and a bond for liability, have your boxes potentially inspected, and then brought those boxes to a warehouse, where they’d be unloaded and sent to different retail stores for sale.
However, thanks to a 1990s era regulation allowing the consumer not the seller to be considered the importer, ecommerce vendors started sending individual packages where the value was less than $800 directly to end consumers, claiming these were “de minimis” and thus were de facto exempt from all duties, tariffs and customs requirements. So now Amazon can just send that bike to a consumer and avoid any duties and most paperwork while your local bike shop would have to pay tariffs on the bikes they stock. Today there are 1.4 billion package that come in de minimis, most from China. A lot of the four million daily de minimis packages are low-value fast-fashion online purchases. It’s effectively a completely tariff free no-inspection wild west zone of fentanyl and smuggling. This loophole is the basis of the business model of Shein, Temu, and Amazon, who have lobbied aggressively to maintain this kind of open border policy.
That said, there are two parts to the de minimis loophole, and Trump only ended one of them. The first is the tariff exemption, which is now suspended. Everyone has to pay tariffs on everything from China, Mexico and Canada. That’s particularly important for the higher end goods below the threshold, the $750 bike or auto parts, for which a tariff does matter in and of itself. But for low value goods, that $3 t-shirt from Shein, which might wholesale at 30 cents, it doesn’t really matter. In that case, Temu will have to pay 10 cents, which is virtually nothing.
The second exemption was mandating that importers go through the “Formal Entry” customs procedure so that CBP actually can tell what is in each box coming into the U.S. These orders didn’t touch that. That’s not as important for high value products, but this is the killer for the Shien and Temu-style products. These importers would have to radically upend their supply chains to comply, if that customs procedure were changed to require licensed brokers and bonding. Unfortunately, it wasn’t. And that means the flow of low-value de minimis packages will likely come in, mostly unabated. In fact, it means that the big guys, Temu, Shein, and Amazon, who have special customs relationships allowing them to easily pay the now-minimal tariffs, will now have an advantage over smaller importers who don’t.
Last month, on just his second day in office when he announced an investigation into US-China trade, Trump said: “Other countries are big abusers also, you know it’s not just China,” and added that he was also looking at trade with the EU. “We have a $350bn deficit with the European Union. They treat us very, very badly, so they’re going to be in for tariffs,” he said.
Trump doubled down, as the BBC confirmed: Trump says EU tariffs will happen and UK is ‘out of line’ but deal ‘can be worked out’
3 Given how official stats are collected, there are many ways to allocate tariff costs across industries and establishments.
4 Some readers from Colombia claimed that Colombia won the encounter by getting the Administration to agree not to have soldiers involved in the transit ex apparently flying the military aircraft. I did not see any agreement not to shackle or cuff them. Regardless, based on some sampling, the press outside the Collective West (presumably ex Colombia) also scored the encounter as a Trump victory. The poor state of reporting means I have not been able to find easily as to whether the Trump demand included unlimited deportations with no/little prior warning, since press reports earlier had stated that most (all?) countries had had to agree to accept their return.
5 This is no exaggeration. I personally know a then dual Russian-American citizen who went to Russia with $180,000 and is now woth over $25 billion.
Seems to me Trump is closing the barn door after the horse has already run away. Policies that were put in place decades ago, and that were intended not to make the country stronger as a whole, but to despoil, plunder, and extract profit for special interest, are coming home to roost. It seems it’s all too little too late.
Trump is burning the barn down with the horses still inside. Did you not read what Yves wrote?
She said the only way this makes sense is if Trump is trying to deliberately destroy the US economy to make it easier to despoil, like Russia in the 1990s.
Even Trump has admitted that his tariff regime will hurt American but is trying to spin this bug as a feature, and even more insultingly, a noble sacrifice. From The Hill,This will be the Golden Age of America! Will there be some pain? Yes, maybe (and maybe not!). But we will make America great again, and it will all be worth the price that must be paid
The question, is to what end. Just to burn the barn down, or is it so infested with vermin that that is the only way to kill them, and then, maybe, a big maybe granted, to rebuild it.
It feels like we are riding a sinking ship and there is nothing we can do
The presumptive pretext of fentanyl for the tariffs on Canada & Mexico is so he can declare victory at any point and reverse course without any measurable results. It is an easily moved goalpost. All he needs to do is extract some hand wavey “War on Drugs” concessions and he can say the the tariffs worked.
I also believe DJT is nearly incapable of evaluating second-order effects or blowback (for example boycotts that permanently change consumer behavior or extended stock market weakness) … for all the supposed credit he gets for his 3D chess skills. A week of continued declines in the S&P index (as Monday’s open hints at) would likely have him reversing course and declaring victory on fentanyl grounds.
1. Canada’s currency is vulnerable. A trade war with the USA will cause a currency crisis. USD is a world reserve currency, CAD is not.
2. Today’s Canada is an import-dependent country. We now even need to import food, mostly from the USA. Weak currency, import dependence, and food insecurity make a really bad mix.
3. Canada has made no preparations to become more self-reliant. Nor have we cultivated relations with other major trade partners. Indeed, Trudeau and Freeland have, in recent years, have deliberately antagonized both China and India.
It is very foolish for the Canadian government to engage in a trade war with the USA, while in a position of grave strategic weakness.
But Trudeau, Freeland, and Carney are all about posturing. Carney is the sort of “serious” guy who thinks that a real estate bubble is something good for an economy. Freeland’s the sort of woman who thought she could scold the Russians out of Donbass. And Trudeau rehearses his patriotic speeches with pointers from Baghdad Bob.
Canada would be far better off to temporize like the Chinese. After all, if the tariffs are to last more than a few months, Trump will need Congressional approval. In another year or so, the mid-terms will loom. Why not just play for time? Trump thrives on fuss–why feed him?
BTW why is there talk of “51st State” ? It would 51 thru 60, thank you. Ten stars. Twenty senators.
That is why he keeps on talking about a 51st State. Being only one, Canada would only get two Senators, a coupla Reps and a very few members of the Electoral College so would have zero influence of the US political scene. Trump or any other future President could just steam roll over that 51st State and do whatever they want without having to listen to the locals. The US healthcare and higher education system would see a new market opening up for them to the north and the Pentagon would get a stream of volunteers from a soon to be impoverished 51st State. For Canada, it would be like what Russia was in the 90s.
“3. Canada has made no preparations to become more self-reliant. Nor have we cultivated relations with other major trade partners.”
And now we can start. Better now than never. And we should stop relying on off the shelf products anyway, every one of us Canadians knows how to do it.
It is very foolish for the Canadian government to engage in a trade war with the USA, while in a position of grave strategic weakness.
I disagree that we’re in a position of weakness, but are you suggesting we give ourselves over to, submit and become subservient to any and every tyrant or bully that comes along? That has never worked in anyone’s best interest. If we had done, we’d be flying the Nazi flag instead of the maple leaf.
Israel is already the de facto 51st state and we’re waiting on you up over to accede to our demands, so you’d be #52 which will make for a more asymmetrical standard, and the plan is to have a large star of David superimposed on the middle of old glory, while a diminutive beaver down in the right hand corner of where the white stars bleed into blue will be our acknowledgement and fitting since it bears some resemblance to Blue Ice which is great for keeping beverages cold and a reminder of what new temperature extremes will be like in the winter in the USA, eh?
Is Israel is already the de facto 51st state? Or is it more that the US is Israel’s 7th District? I can guess what Netanyahu thinks and he was just visiting Trump and telling him what his Middle East policies will be.
Think Puerto Rico not 51st state.
As it turns out the mistake was made in 1988 when we voted to more closely integrate with the US.
https://m.youtube.com/watch?v=MYQCb3qrBpo
Trump wants taxation and control without representation! If there ever are serious negotiations (i doubt it but) Canada should count on one state, 2 senators and a population based number of representatives. Maybe an exemption for Alberta and Manitoba.
I can’t remember where I saw it, but there was a suggestion that the countries targeted by the new tariffs should impose export tariffs on goods going to the US.
Not to make a point but to help their industries reorient elsewhere and diversify their trade.
We are living in such interesting times.
When I read that oil imports to the US were excluded from the Canadian tariffs that was my first thought. Trump wants oil and fuel prices to decline (he’s promising production increases), but if Canada taxed those oil exports it would directly negate Trump’s desires and directly impact the US economy. That said, I don’t know what the knock on effects would be to Canadians via the reimportation (if any) of refined oil products.
Others have already mentioned that, without an industrial (and jobs) policy, the United States government doesn’t stand to gain by the imposition of tariffs. Tariffs in the U S of A during the 1800s were designed to shelter growing industries.
Contrariwise, I have a feeling that the tariffs are going to show right away how much the U.S. economy has been hollowed out by NAFTA / USMCA and other “free trade” fantasies. When I was in Chicago in September 2024, I knew in an instant that Kamala Harris was never going to win the election,
How?
A coffee and plain croissant at a nice but not ultrafancy café was priced at USD 9.18. But what truly indicated to me how messed up the U.S. economy is was the tomatoes. Yes, tomatoes. In the third week of September, which is high tomato season in the Great Lakes States, the Jewel food store was carrying only tomatoes from Mexico and Canada. The indy produce market across the street had only one kind of tomatoes from the U.S. of A. They were from Michigan, which is normal in Chicago. They also were too sweet, as if to reinforce the stereotype that U.S. foodstuffs are cloying.
For a number of years, we all saw the sleeves of garlic — from China.
The U S of A can’t even produce its own garlic.
And altering agricultural production isn’t a matter of opening a seed packet and magically growing an asparagus plantation next season.
Yves Smith mentions the auto industry. One wonders if the most important and sturdy parts of cars — the garlic, the drive chains, the alternators — have been outsourced to Mexico. What is left in the U S of A? Design, some assembly, and detailing? Oh, and the marketing department.
So: I’d recommend analyzing the ensuing tariffs chaos to see what gaping holes in the U.S. economy start yawning even wider and ever more publicly.
Without a serious agricultural policy other than monocropping and gigantization, without a jobs policy and repeal of the Taft-Hartey Act, without subsidies for training, without identification of growth industries, the tariff charade may end up an expensive embarrassment — not sure if this is Trump’s Yeltsin moment. Yet the 90 percent will pay for it.
I made a post that seemed to have vanished…but on autos…days on lot is very high fro dealerships right now as no one can afford to but the over priced new cars. Also, repossessions are at a high.
I do not think tariffs will help this much.
DJG, Reality Czar: I have a feeling that the tariffs are going to show … how much the U.S. economy has been hollowed out by NAFTA / USMCA and other “free trade” fantasies.
Oh, very much so.
DJG, Reality Czar: But what truly indicated to me how messed up the U.S. economy is was the tomatoes. Yes, tomatoes. In the third week of September, which is high tomato season in the Great Lakes States, the Jewel food store was carrying only tomatoes from Mexico and Canada.
And this is a shocker, in particular. US Agriculture is the one thing, given the the country’s scale and its historical agricultural capability, that should not be losable even when US industry and know-how has vanished after decades of neoliberalism.
DJG, Reality Czar: not sure if this is Trump’s Yeltsin moment
Maybe more like his King Canute moment?
https://en.wikipedia.org/wiki/King_Canute_and_the_tide
Perhaps the tariff shocker is aimed at Wall street since they are the ones behind the offshoring. The whole situation is way above my pay grade but as you point out we have had plenty of inflation lately under Biden and some claim this is because unrestrained food companies are imposing their own profit tariff on consumers. If our current economic oligarchs are the issue then “confusion to the French”?
Alex Cockburn once quipped that if you lived under the Roman empire would you want competent Romans in charge of conquering and enslaving? Perhaps Trump is the monkey wrench. Not that I am for that or even understand it. Some of us are here to learn.
Every point you mention applies even more to Canada than to the USA. Canada has no industrial policy, nor any agricultural policy (except vestigially, in the dairy sector.)
And unlike the USA, Canada does not enjoy the “exorbitant privilege” that comes from issuing the world’s reserve currency.
The economic policy of the Liberal government under Trudeau has consisted only of the following: massive deficit spending monetized by the central bank, a housing bubble, and massive immigration to drive up rents and hold down wages.
Now Trudeau, Carney, and Freeland think they go tit-for-tat in a trade war with the USA. With the Canadians putting the puck in their own net, Trump could win the game without even learning how to skate.
Jewel carries a ketchup brand from central Indiana. I’ve driven across IN route 28 to see the plant and farms. If they can grow those tomatoes then they can grow the others for salads. Plenty of space. Get rid of the ethanol in gasoline mandate and that corn and there will be even more good land available.
Also driven from Windsor to Niagara Falls via the back roads just north of Lake Erie to see the vast tomato farms there, too.
Thank you. The mono-culture nature of industrial agriculture in the Neo-liberal era limit source and variety. This is more pronounced in urban areas. Rural areas offer the chance to buy local at the source. For instance, garlic. Everybody grows garlic here in SW Vermont. You can buy it on the side of the road from August to October. Local growers often have more than they can sell, unloading braids in November. Yet, the big box grocery stores on the strip sell the sleeves of Chinese garlic year round. Same with eggs. Everyone’s got chickens. I can buy a four dollar dozen on the side road this morning if I need eggs. Big box retail does not have the luxury of sourcing local, because they rely on massive scale to limit the impact of ever increasing shipping and labor costs.
That graph showing the incoming revenue from tariffs vs the outgoing in the form of relief payments to “farmers” is interesting. Controlling revenue streams is an effective way to control industry.
Thanks for this comprehensive coverage of tariff policy and its impact. I am more and more convinced that these tariffs are designed to do what Trump claims: “pay for” extending the Trump tax cuts. They’re a back-door way of instituting a partial VAT tax on goods coming from designated countries.
No, I did not include that due to the post being overlong already. No way, no how would tariffs even on all US imports provide enough revenue. You forget that the rationale for tariffs is to reduce purchases of the tariffed goods and not to raise revenues. That’s the justification in development economics: to create a protected market so that domestic producers can hopefully grow to be big enough to eventually compete internationally.
https://www.independent.org/news/article.asp?id=15185
True, but this implies the there is someone as rational and informed as you making decisions. This is where it gets tricky. Intent is hard to measure when the subject shows irrational behavior.
@ Yves —
Here’s the WSJ feature (video) on —
Why Economists Hate Trump’s Tariff Plan | WSJ —
from Oct. 17, 2024
WSJ explains how tariffs work and what Trump’s proposals would do.
https://www.youtube.com/watch?v=_-eHOSq3oqI&t=162s
And yeah, they say that you can use tariffs to create jobs, but it’s very expensive.
I think they’re not wrong but arguing from priors, and if Trump were more interested in reshoring US industrial capacity that might arguably take precedence. Except then all Michael Hudson’s arguments apply about how it would also be necessary to bring down extractive living costs that US proles suffer — RE, healthcare, etc. — and Trump’s government of billionaires and financial elites ain’t going to do that.
Re Twitter wasn’t that big loss in revenue because outraged media types and Dems pressured advertisers to boycott? A lot of those people he fired were involved in censorship as described in many articles by Taibbi.
Which doesn’t mean Musk should be involved in reorganizing government since his businesses are heavily dependent on the USG.
Musk went out of his way to be provocative about what he was doing and was hyperpartisan in favor of Trump. IMHO could have implemented 80% or more of his free speech policies and have kept most advertisers.
Advertisers would not have left it it was a market worth advertising in. The bot activity – which is entirely out of control – makes advertising impossible. And the pic in bio, dm for pics bot activity made a lot of brands exit.
He wrecked it. Period.
Thank you. You have better goods than I do.
I went to the doctor a month ago, telling him we had about five more years of relative normal before who knows what happens. Hence this was the last time to build up mental health and mental stamina with therapy or other means to get ready.
Im revising that to two-ish years. That may even be optimistic.
I like the list. Except for Campbells Soup I don’t buy any of those products, no matter the brand or country of origin.
I will be checking in on the Stocks & Jocks Chicago-based financial podcast today, where The Chief hangs out every weekend morning at Menards, Home Depot and Lowes on Bell Road in Homer Glen where he observes by just watching for economic clues, to see if there was a run on lumber over the weekend.
Starbucks v Tim Hortons? Rather have Aunt Bea’s Pickles over either.
I heard somewhere that Trump likes McKinley. He did rename that mountain McKinley (again).
McKinley added Hawaii and Puerto Rico, and took control over Panama, Phillipines and Cuba. Trump wants to add Canada and control Greenland and Panama (and probably Cuba if he could find a way).
McKinley was pro tariffs and added tariffs. Trump really, really loves tariffs.
McKinley wasn’t dogmatic on bimetall vs gold, but domestic and international pressure lead him to gold, and he became the president for the gold standard (because free silver was on the other ticket, supporting Bryan). Trump has after pressure from the crypto lobby bought into the digital, modern, version of fool’s gold.
Maybe the rest of the world can set extremely high tariffs on US MIC products and services. That would be a great thing to do…
Wait a minute, doesn’t eliminating the de minimis rule mean more red tape? This should be the opposite of the DOGE philosophy.
As part of this deranged policy implementation, it would not surprise me if part of the secret rationale is to raise revenue in order to “pay for” tax decreases. After all, President Trump is now talking about how this will make us all rich and he also promised the visitors at Mar-a-Lago that he was going to give them tax cuts galore.
I found these papers very much on point, especially insofar as they apply to Canada – specifically with respect to the first paper and obliquely with respect to the second: https://ora.ox.ac.uk/objects/uuid:d814c73c-5170-434b-acac-add11b317fe5/files/sfx719n808 and ora.ox.ac.uk/objects/uuid:520795b1-6f2b-4f9f-925b-60f976f80c25/files/s9306sz940 (both co-authored by Kevin O’Rourke).
Not for the first time, the US finds itself impaled and writhing upon the horns of the Triffin dilemma: https://global.oup.com/academic/product/robert-triffin-9780190081096?cc=gb&lang=en&
Was the DeepSeek announcement last week intended as a warning to stop Trump applying tariffs – the combination of the two potentially having significant adverse impact on Western stock markets?
Ready! Fire! Aim?
Canada and Mexico should block twitter and put a 100% tariff on Teslas.
Enjoying the jokes about Canada throttling power during the superbowl.
Thank you Yves. Intended or not, late ’90s Russia is a real possibility. How that translates in mid ’20s USA is above my pay grade.
The last time Trump was in office launching sanctions against China, I think that somebody worked out that it was ordinary Americas who paid about 92% of those increased costs and not the Chinese. This time will be no different. Got an idea here. The US has been using its military/spooks to go around the world and setting countries on fire so that they can swoop in and pick up the pieces on the cheap but Trump considers warfare to be wasteful and the US military is not what it used to be. But what if he is continuing this long-standing policy and using economic warfare instead. So if he busts up Canada, Mexico, the EU, the UK or wherever causing chaos and disruption, he can then go in and pick up the pieces on the cheap. See? Same policy as before but just different methodology. Nobody “important” will get hurt and the corporations in those countries will cooperate to get a share of the booty. Everything old is new again.
Brian Berletic posted an interesting take on the tariffs over the weekend. He feels the tariffs are a result of deep state pressure on Trump to throttle China’s influence on both Mexico and Canada. Since the tariffs make no economic sense that might explain what is happening.
From my occasional forays into conservative economic talk, there seems to be a fanbase of William McKinley among Trumpites, who is credited by many on the right with having brought the US out of the long Depression and sowed the seeds of its industrial might with what was seen at the time as a somewhat excessive use of tariffs. So there may be some behind Trump (I doubt if he’s read any 19th Century economic history) who believe in a sort of domestic shock doctrine, whereby a sharp tariff load would force a fundamental economic shift towards domestic production. I doubt it would work, but this may be the intellectual idea behind Trumps behaviour.
On a broader sense, tariffs work very differently from how most economists think, because as Pettis has pointed out many times, conventional economic views on tariffs are primarily ideological, not based on rogorous analysis. Historically, tariffs have been a highly effective mode of promoting development, but its hard to find any examples of where developed countries have used them successfully (arguably, Russia is an example, even if the tariffs weren’t necessarily chosen by Moscow). The broad impact of tariffs is very similar to a devaluation (it shifts spending from consumers to producers), but in an (arguably) more focused way. The success or otherwise of past tariffs has almost always been down to a wide variety of features and circumstances that may not be replicable.
The one historical reality is that tariffs tend to favour countries running a trade deficit, which is why the US tariffs of the 1930’s were so catastrophic for the US. So it may be that there is a simple calculation that any damage caused to the US will be much worse for those countries running trade surpluses with the US, and so proportionately benefits the US in relative (if not actual) terms. For someone who sees trade as a zero sum game, this may make sense to Trump and those behind him. One thing credited to McKinley by some conservative historians was that he essentially broke the dominance of Britain as the latter clung to its love of free trade, leaving itself very vulnerable to a competitor willing to use tariffs ruthlessly. I don’t think this is true, but it is an article of faith for some on the paleo right.
The puzzling thing for me is why his new Big Tech buddies are so quiet about this. They are supposed to hate trade wars. I wonder if they see this as a ‘smash everything and pick up the pieces’ moment. But then again, Musk is talking about the US military defeating the cartels – if he believes that, he really is stupider than I thought.
I really hate delving too deeply into contemporary right wing thought, partly because the algos begin to think I’m a nazi, and partly because life is too short to spend much time on what they think. However, it is undeniable that since covid there have been a range of new ideas emerging among the paleos, the libertarians, and the old style conservatives, some of which are lunatic, some of which are quite interesting. I’ve no idea of the internal dynamics behind Trumps new supporters, but I do think we are looking at a whole new set of ideas far away from traditional Republicans or conservatives as a whole. So while we can’t discount that this is just Trump being Trump, there may well be a surprisingly coherent ideology behind all this.