When it comes to Trump’s tariff threats, do worry—but be (somewhat) happy too

With Donald Trump threatening to impose a 25 percent tariff on Canadian and Mexican goods, reactions range from puzzlement to outrage. But maybe we should be singing “Do worry, be happy.”

The reasons for worry are obvious given the economic and even geopolitical consequences of a major trade war. And while Trump can be somewhat erratic, we should have learned by now to take his words seriously.

So why be happy? One reason is that the president does not have unilateral authority to impose broad-based tariffs, and enough members of Congress know enough economics and economic history, including the disastrous 1930 Hawley-Smoot Tariff Act that helped trigger the Second World War, to make full implementation of the threat improbable. But another is that the threat is not what it seems.

As Howard Lutnick, Trump’s indicated nominee for secretary of commerce, has made plain, it is fundamentally a negotiating tactic to pressure trade partners on other issues on many of which, frankly, we should be acting anyway. The key ones for Canada and Mexico are illegal drugs and illegal immigrants and, for Canada, inadequate defence spending and dysfunctional military procurement. And while the president and many of his key appointees may exaggerate the former two problems, at least from our side, there can be no harm in deflecting their concerns respectfully where appropriate, and acting where genuine issues exist. And on defence, it is clearly in our interest to spend more, and better, even without this new pressure.

Going back to worrying a bit, if we do not respond quickly, sensibly, and civilly, the American president can impose some selective tariffs using existing legislative authority. And here let me particularly thank Andrew Hale, senior policy analyst in trade policy at the Heritage Foundation, for his thoughts on this issue generally and the following specifics.

With Donald Trump threatening to impose a 25 percent tariff on Canadian and Mexican goods, reactions range from puzzlement to outrage. But maybe we should be singing “Do worry, be happy.”

As President Biden has also done, President Trump may impose some specific “301, 201, and 232 tariffs,” named for relevant clauses in U.S. trade legislation. For instance, section 301 of the U.S. Trade Act of 1974 authorizes the president to impose duties and suspend aspects of trade agreements if a foreign nation itself violates such agreements, provides subsidies, or imposes “unjustifiable or unreasonable” tariffs or other restrictions on trade. Section 201 of this same act covers economically disruptive imports, while Section 232 of the Trade Expansion Act of 1962 authorizes the executive to “take such action, and for such time, as he deems necessary to adjust the imports” of anything threatening national security.)

These are not very broad powers. But within their limits, they are highly discretionary. And Congress might, for its own reasons as well as those of the president, impose what’s called a “border-adjustment tax” to offset a domestically generated tax penalty on domestic production. So if we are sluggish in responding we may well face some tariff measures that hurt our trade without drastically disrupting it.

To return to the happy side, they are easy to forestall, particularly for the Canadian government. Mexico has its own more serious issues, and Trump has also threatened tariffs against allies, possibly including the U.K. and Australia over restrictions on free speech, arguably an intrusion on their domestic affairs though, again, surely in keeping with their own best interests. But for our part, we just have to show sympathetic understanding and offer reassurance where the problems are not as serious as some in the incoming administration believe, and take sensible action where appropriate.

We may or may not be a major source either of illegal drugs or illegal immigrants. I have seen decent arguments on both sides. Nevertheless, we are indeed something of a haven for money laundering because our policing has not kept up with the challenges. Which is hardly in our own interest regardless of its trade implications. And we have been free-riding on defence far too long, which ironically impairs our sovereignty in dealings with Washington as well as more broadly.

Fred Langan, quoting Hubert Marleau and Conrad Black, rightfully points out in his latest weekly newsletter that: “Canada buys more from the U.S. than China, Japan, France, and the U.K. combined…Canada is not a weak and defenseless country and should not act like one.”

Thus the bad news, and good, is that what we now face is not a massive and intractable American commitment to destructive protectionism. It’s a strategic threat of selective tariffs to push us to act in our own best interest as well as that of our key neighbour, trading partner, and ally.

So do worry. But nevertheless remain (somewhat) happy.

Michel Kelly-Gagnon is Founding President of the MEI. The views reflected in this opinion piece are his own.