By Matthew Clark
Since Donald Trumps recent stunning return to Presidential power one word has been frequently used by both the President, and his opponents: Tariffs! President Trump claims that the United States suffers under an international prejudicial trade regime which discriminates against his nation's economic interests. In particular he sees Communist China, the Kingdom of Canada, and the Mexican Republic, as hampering the citizens of the United States ability to make a living wage. To rectify this situation the President has decided to employ an age old strategy. Tariffs!
According to the World Trade Organization (WTO) tariffs can be defined as ; 'Custom duty on merchandise imports are called tariffs. Tariffs give a price advantage to locally produced goods over similar goods which are imported, and they raise revenues for government.'
For hundreds of years tariffs were a much beloved tool in the government workshop. They offered a way of protecting the nations industries while also bringing in much needed cash to the public coffers. In the United States one of the first acts signed into law by the first Congress/Administration was the Tariff Act of 1789. This act protected American manufacturing while also being a major source of Federal government revenue. According to the Fordham Journal of Corporate & Financial Law some years in the 19th century tariffs provided 95% of Federal government income.
Tariffs held such attraction for law makers that in 1828 U.S. tariffs were increased by 50%! Yet there was a definite downside(s) to import duties. If a persons income depended on buying foreign goods, or were prevented from buying less expensive foreign products, then tariffs were not convenient, or popular, at all. By 1833 agricultural dependent South Carolina politicians were threatning secession from the United States. Indeed now deceased Charles Adams, a financial expert turned historian, points to the Lincoln administration/Congress March 1861 tariff increase by an average of 47% as a major cause of the civil war. Lincoln, Adams points out, was prepared to negotiate on the issue of slavery, yet not on the issue of import duties. Nevertheless behind this protection United States manufacturers thrived, turning the young republic into the wealthiest nation on the planet.
Import duties kept a good reputation among politicians until the financial crash of 1929. At that time an attempt was made to revive the American industrial and agricultural sectors by having congress pass the Smoot-Hawley Tariff Act. Import duties were increased 20% on top of their existing levels. Quickly other national governments copied the Americans. Immediately international trade plummeted. Trade between Europe and the United States for instance, declined by two thirds. After the Second World War political leaders made a conscious effort to keep trade barriers low. By the 1980's free trade was the go-to position of the U.S. Federal government.
Leaving Mexico and Mainland China aside for another day, it can be said that Canada also has a history of using tariffs to achieve an economic end, In 1878 Canadian Prime Minister John A. MacDonald instituted the National Policy. A major part of this plank was the employment of import duties to protect Canadian industry. It worked impressively as the populace thrived. From 1878 until the end of World War Two, through both Liberal Party and Conservative Party administrations, tariffs were an integral part of the federal governments economic policy. Only with the acceptance of freer trade amongst the geopolitical world did Canadians rethink their adherence to import duties.
Interestingly just as southerners in America rebelled at the use of tariffs Western Canadians patience was stretched thin by the ramifications of the National Policy. "Western Farmers complained that they paid too much for tariff protected Canadian goods" Actually most farmers in all parts of the country made this complaint. What made Canada's west different from the rest of the nation was that farmers were supported by their western urban peers. Ultimately the observation here is that tariffs, just like free trade, has it's winners and losers.
Observing the lessons of history and then translating them into the contemporary political circumstance it appears Donald Trump is trying to regain some manufacturing capacity for the citizens of his country. In Trumps eyes Making America Great Again means having her people once more making things. If a 'Beggar Thy Neighbour' strategy has to be employed to achieve this end then so beit!
Another angle the President might be considering is using tariffs as a method of ridding the nation's burdensome reliance on the income tax. Trump is not the only individual who has mused that the hated income tax must be abandoned. Yet he is the first President to do so in many a decade. Not only is the tax on income sucking the savings of every nations (where it is employed) citizens dry, it creates enormous moral hazards. Governments overspend recklessly, employing 'guns and butter' actions which greatly limit the well being of their citizens. They do this because income tax has the potential to bring in enormous revenue. The fact that spending is always greater then incoming revenue changes lawmakers behaviour not one little bit. They continue their counterproductive ways, claiming more taxes will right the ship of state finances in the end. Conversely a tariff reliant administration would have a lower level of income in which to function with. Budgets would have to be frugal. This would be music to the 'Donalds' ears!
As for the Presidents comments on Canada being the fifty first state. This is not a policy pronunciation. Rather the President most probably sees it as a possibility. As he employs a 'Beggar Thy Neighbour' policy Trump, being an intelligent man with knowledgeable advisors, is aware of Canada's vulnerabilities.
What are those vulnerabilities? If the Canadian federal government replies with tariffs of their own they substantially risk further alienating Western Canadians, as well as rural folk everywhere in the Great White North. This portion of the populace has little tolerance for self righteous exclamations of Canadian nationalism. Furthermore if Canadian government import duties result in economic suffering the disenchanted voters will seek more radical political alternatives, including separation.
In Canada's case instituting tariffs will not assist her manufacturing sector in any meaningful way. Over the last ten years the decline in Canadians standard of living makes it highly impropable that the nations domestic market could support an increase in the manufacturing sector. Tariffs would however result in higher housing costs!
"A trade war started by U.S. tariffs would really be an unfortunate and problematic thing for housing in Canada" according to Kevin Lee CEO of the Canadian Home Builders Association (CHBA). The Housing industry accounts for 40% of the Canadian nation's economy. Costs in the sector are about as high as they can go without collapsing the entire industry. Any further cost increase(s) will make purchasing a house all but untenable for all but the wealthiest of people. Once the housing sector collapses the remainder of the Canadian economy will quickly follow. If this occurs political chaos will most certainly follow. Donald Trump knows this. So does the Canadian body politic. It explains the emotionally exaggerated response to the U.S. Presidents rhetoric by lawmakers in the Northern Kingdom.
In conclusion it appears obvious Donald Trump has the Canadian government(s) by the short hairs. Whether it is wise to surrender to the 'Donald' so that the country can live to fight another day, or go down screaming defiantly is hard to determine. What is clear is that Tariffs are a winning hand (regarding Canada) for the President. Therefore it is in the interests of Canadians that these issues be resolved, one way or another, very quickly!
References:
WHO webpage on tariffs
Fordham Journal of Corporate & Financial Law
A Brief History of Tariffs in the United States and the Dangers of Their Use Today
Britannica: How a Tax Increase Helped Spark the American Civil War
When in the Course of Human Events by Charles Adams, published 2000, Roman & Littlefield Publishers
The Canadian Encyclopedia
National Policy by Robert Craig Brown published online Februrary 7th, 2006 Updated by Gord McIntosh March 4, 2015
Canadian History: Post-Confederation
3.3The National Policy
How a trade war and U.S. tariffs could hit Canadas housing market
By Saba Aziz- Global News Posted online January 29, 2025 at 1;34 p.m.
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