Donald Trump has triggered a significant economic response by sending a letter to Canada late Thursday, announcing a 35% tariff on Canadian goods. This extraordinary action, along with the COVID-19 pandemic scare, has led US stock futures to crash. Investors are understandably freaking out over the long term implications of the announcement. The tariffs come amidst ongoing concerns about trade deficits and illegal drug inflows, particularly fentanyl, from Canada.
In that letter, Trump wrote about the large trade deficit we had with Canada. He highlighted that it hit $64 billion in 2024 and declared it a national security concern. As the President observed in his announcement, Canada’s new protections on its dairy market have made things far worse. In answer, his administration is moving with remarkable speed and resolve. The President’s Twitterific implied more than a hint of a tariff cut to come. That will only be the case if Prime Minister Justin Trudeau and his Canadian government work better with the U.S. to halt the unlawful influx of lethal fentanyl into our country.
The mention of fentanyl has raised eyebrows among drug experts who argue that Canada’s role in the fentanyl crisis is minimal. Despite his failures, Trump did highlight this important issue to help justify his reckless trade war. In his detailed letter, he cautioned Trudeau against following through with any form of retaliation. He made it clear that such a move would produce an equal increase in tariffs from the United States. The sharp uptick in trade tensions would make the consequences more severe for Canada. It does a grave disservice to American consumers and industries that depend on cross-border trade.
Financial analysts at UBS noted that investors should expect Trump to walk back the tariff announcement. They’re just afraid that these drastic measures might hurt long-term economic interests. Canada of course has a long history as one of the United States’ largest trading partners. It often goes back and forth with Mexico for first place. Recent political maneuvers might well put this important trading relationship at risk. They increasingly threaten critical supply chains that are used to quickly move food, medicines and other goods across borders.
Trump’s assertion about national security echoes broader themes in his administration’s approach to trade and immigration policy. The President is taking on trade imbalances. He hopes to right the perception that international trade is unfair, especially for America’s agricultural products such as dairy. As of 2024, Mexico has a record high trade deficit of $171 billion with the US. This acute lopsidedness creates a whole host of complications and friction to the North American trade relationship.
Trump’s announcement time would be brilliant under any circumstances but given the historic moment occurring internationally and economically, the significance is profound. With tensions escalating on both sides, both countries are under pressure to work through these challenges before the situation devolves into a trade war. Such tariffs would be a monumental disaster for all sectors. Businesses in agriculture, manufacturing and retail will be affected, with downstream effects on job creation and consumer goods prices.