Donald Trump plans to levy 25% tariffs across the board on Canada tomorrow:¹
The result, an overwhelming majority of economists agree, would be inflation and supply disruption in the United States, while Canadian industries could face large-scale layoffs.
Inflation in the US and unemployment in Canada! Sounds great. And whole factories will shut down:
Because 25 percent is far higher than the profit margins on cars and trucks, as well as the parts used to make them, industry executives predict that parts makers would soon stop shipping and factories would quickly close in all three countries, laying off thousands of workers.
“A 25 percent tariff across the Mexico and Canadian border will blow a hole in the U.S. industry that we have never seen,” Jim Farley, the chief executive of the Ford Motor Company, said last month.
Anderson Economic Group, a consulting firm in East Lansing, Mich., estimates that tariffs of 25 percent would add $1,000 to $4,000 to the price of a new vehicle, and as much as $10,000 if manufacturers are unable to take steps to reduce the impact.
....[John] Elkann acknowledged that the tariffs could make a turnaround harder for Stellantis. About a third of its highly profitable Ram pickups are assembled in a plant in Saltillo, Mexico. It also makes two Jeep models at a second Mexican plant, in Toluca. It makes Chrysler Pacifica minivans at a plant in Windsor, Ontario, and is scheduled to begin making the Dodge Charger in the same factory this year. A second plant, in Brampton, Ontario, is being retooled, with plans to make Jeeps there when it reopens.
Needless to say, this was all encouraged by the USMCA treaty Trump himself signed in 2018 and called "the single greatest agreement ever signed." But Trump doesn't care anymore. He wants more, and "Who's gonna stop me?" is his motto these days.
¹Also Mexico, but this story happens to be about Canada.
What's more, no matter how bad today is, in America tomorrow will be worse.
A corollary of Cleek's Law?
There's a way to use tariffs as part of a wide-ranging set of policymaking in order to re-shore manufacturing and re-orient the US towards a more high-price, high-wage economy.
Right now we have a massively productive economy. A single US worker is one of the most productive workers in the world on a per-hour basis. Some of the other developed democracies beat us, but a US worker is worth almost six Chinese workers, for example. (China is gross unproductive on a per-hours-worked basis. RUSSIAN workers are nearly twice as productive.)
We also manufacture a lot of things. But by and large our economy is oriented towards using as little labor as possible for manufacturing (part of the reason we're so productive is an educated US worker in a modern factory can leverage automation for astounding gains), and for having low prices for consumer goods.
The thing is, though, this sort of economic transformation would require concomitant industrial policy, tax policy, and a bunch of other things to actually work, and even then likely wouldn't go smoothly.
But Trump's idea is literally "tariffs mean we don't need income tax no more!" and "screw them other countries!" I've already dignified it more than I should by talking about the actual use-cases of tariffs. This is a combination of economic idiocy and mafia boss shit. He's gonna make some demands of Canada and Mexico while wielding this as a cudgel. It might work! But Canada and Mexico aren't pizza parlor owners that Donny T. and his soldiers can shake down. They're actual-factual countries that will react badly and change their own national policies even if they pay up in the short term.
"There's a way to use tariffs as part of a wide-ranging set of policymaking in order to re-shore manufacturing"
Potentially, yes, but it also means long-term, steady, and predictable implementation of said tariffs as part of said policymaing. Otherwise, nobody invests in building infrastructure anywhere, because there's no way of knowing if that investment will pay off.
As an example: by codifying the effective (and already at that point largely effectuated) removal of tariffs between and among the US, Canada, and Mexico with NAFTA, businesses invested in efficient and complex supply chains linking North America into a single manufacturing and distribution complex. Process took decades, but there it is.
As a counterexample: Trump threatens Canada and Mexico with tariffs (to protect US industry? Somehow?), then immediately folds when Canada and Mexico agree to do what they were already doing on issues having nothing to do with industrial policy. Trump then vows he'll maybe impose tariffs 30 days later. And maybe he will! Or maybe he will fall asleep in the middle of a tweet, or scream at a Ukrainian, or something. Who knows! But: who is investing in US manufacturing as a result of this? Probably nobody.
The US is extremely productive per worker largely because we have an extremely large capital base. Every worker (on average) has a TON of capital stuff -- physical plant, equipment, information processing, supply and distribution chains, marketing and sales systems -- behind him/her that allow TOTAL output PER WORKER to be extremely high. Other countries have this to varying degrees, but none close to us.
The US is also very EXPENSIVE per worker, because of our high standard of living, our relatively high labor costs (especially now), our aging demographic profile, etc. Other countries have similar issues, including some worse than us (eg Japan), but many (eg China) don't.
There's not a whole lot more we can do to increase the capital advantage (unless you believe in some fuzzy notion of "AI" -- however that's being defined in today's breathless hype -- somehow creating a boundless, machine-produced cornucopia), and certainly there is no investment boom in the US, despite the still-considerable amount of capital sloshing around the world. So that's not gonna change, at least for the forseeable future.
And unless we have a massive and prolonged recession, sufficient not only to drive down wages but actually materially drive down our standard of living, the second part of the equation isn't gonna change much either.
And those things go a long way to explaining why we're now -- and have been for a while -- primarily a SERVICE economy, not a manufacturing economy. We don't MAKE stuff for other people (and ourselves); we DO stuff for other people (and ourselves). If we want something made, we're more likely to offshore it than try to shoulder the expense of (1) assembling the necessary capital base and then (2) paying prevailing wages. And ain't much reason to think any of that's gonna change either.
So all this talk about "re-energizing" American manufacturing is imho like commanding the tides to roll back. At best it's mostly futile -- with a few exceptions here and there, as always -- and at worst it's hype and scamming. Na ga ha pa.
Well stated. A couple more things: If the China tariffs encourage manufacturers to move production out of that country, it’s likely to go to Vietnam or the Philippines, where lower labor and environmental costs would keep costs internationally competitive. Relocating production to the US would mean either a) heavy investment in automation, to keep unit costs world-competitive, or b) limiting sales to the protected US market.
High-wage economies got there because of labor unions and high levels of education. These are not incompatible with a service economy.
I do favor an industrial policy that insures that we have a viable manufacturing sector, because the transformation of raw materials into products requires broad expertise in sciences and engineering. High-value products can be profitably produced in high-wage countries.
"A single US worker is one of the most productive workers in the world on a per-hour basis."
This is a really bad way of looking at productivity because it is both wrong and misleading.
What we have is a massive amount of automation. We have recipes for converting certain predetermined inputs into certain predetermined outputs in certain predetermined quantities and at certain predetermined rates. We have machines configured to execute those recipes.
Should we suddenly need to deviate from those recipes (e.g., build different stuff, use different inputs, etc.) everything goes to hell. Consider what happened during the pandemic. Seriously - there is a massive tradeoff between efficiency and flexibility.
And it's not like we are building everything -- in the same manner that productivity increases initially when there is a recession (because lower productivity workers are fired first), we are building only those things that we can sufficiently automate.
It is true that ‘hard’ automation will probably always yield the lowest unit production costs, and that it must be economically justifiable by high production volumes and limited product variation. It is also true that flexible automation has made great progress since numerical control and industrial robots were introduced, and additive manufacturing is becoming a further step-increase in capability. Flexible production systems are the higher-productivity alternative to manually-performed fabrication steps and bench assembly, for lower-production-volume and/or variably-configured products.
My point is that productivity should not be attributed to the individual workers. Productivity should instead be attributed to the productive system of which the worker is but a part. And the productive system itself only achieves that degree of productivity over a limited configuration of inputs and outputs.
Attributing productivity to the individual workers leads to jingoism and an unfortunate tendency to overestimate the capabilities of the American productive system.
Also, when you conceptualize productivity as a gross averaging over productive processes, the role of innovation comes into better focus.
Innovation is bottom-up. Innovation is people finding technical solutions to technical problems that arise in specific productive processes. If your country's productive system isn't performing certain processes (e.g., shipbuilding, chip manufacturing, drone manufacturing, high-speed rail, solar panel manufacturing, etc.) then you aren't going to innovate upon those processes.
US manufacturing jobs were lost overwhelmingly to automation, not foreign trade/ Tariffs can't bring back those jobs.
True. However, Germany has a higher proportion of its GDP from manufacturing than does the US, and devotes a greater share of its workforce to manufacturing, so theoretically there is some set of industrial policies that would result in more manufacturing jobs in the US.
It probably isn't tariffs that would do it, though, and anyway, we should be focused on making sure that US jobs are good jobs, not necessarily jobs in this or that particular sector.
Yeah, tariffs alone *won't* do the job-- to replicate Germany we'd need a comprehensive apprenticeship system with parallel and well-funded secondary technical education systems as well as technical universities. And maybe some cultural shifts too, but maybe not.
And the prospect is a little less attractive right now, because Germany seems to be having pretty serious problems in its industrial employment sector.
Who cares if you can't afford a new car, or they aren't even available to buy at any price? People can just take the bus!
Once the entire government is funded by tariffs, we won't be able to afford roads anyway, so individual vehicles will be superfluous.
Any guesses as whether this will motivate many (any?) Canadians to vote for statehood?
Interesting facts in that regard!
"Canada should be one (or many) US states" is a fringey position in Canada. It has the support of a little less than ten percent of the population, it's wildly unpopular.
But! Among self-identified Tory voters, that number jumps to over 20%. Anschluss is overwhelmingly a preference of the Canadian right, because it means among all other groups, support is like... sub-five percent. And among Tory voters those number are massively correlated with former Reform Party membership or support.
This has been causing all manner of trouble for Pierre Poilievre, who once upon a time was one of Stockwell Day's nasty little henchmen and whose base of support within his own party contains a disproportionate number of... well, of basically traitors to Canada whose views are massively toxic to the rest of the country.
Couldn't happen to a nicer guy.
Reform-party background does give the game away-- prairie and oil-patch separatists, I think is how the rest of the country tends to see them, and how a good many of them see themselves too. The tension between them and the Laurentian core has played out in several iterations that I've seen from afar since the 70s. Not that the west hasn't had legitimate beefs since the start of things there, but distance, small relative populations, desperation at being ignored, comparison with Quebec, have tended to move some people in extreme directions.
Poilievre is a caution. I once watched a youtube vid of him doing a sit-down with Jordan Peterson that had me shuddering for days afterward. Felt like I was eavesdropping on a secret meeting of the Hayek admiration society or something. And to this day I don't know whether he was a true believer or just fluffing his base. He's been an effective opposition guy-- his natural role, I think-- but there's something off-putting about him. He really likes to play peekaboo around the edges of those extremist circles with western roots, and that came out very strongly during the trucker convoy a few years ago.
His riding has a lot of Franco-Ontarians so it's natural to think that's his background, but no. After all the party work he did he could have picked a constituency anywhere but he chose this one specifically so he wouldn't have to spend any time flying out for district work and back for sessions, but would only need to drive half an hour between the riding and Parliament Hill. All that extra time for cementing his position in the party. I only learned this about a year ago.
I'm all for it. 10 new states - 20 new Senators, all, with the possible exception of Alberta, solidly Democratic. Almost 50 new Congressmen, again, almost all Democratic. And 70 electoral votes. Solid Democratic majorities in both houses of Congress and Republicans wouldn't have a snowball's chance in hell of winning the White House.
Oh, and a non-negotiable condition would be Medicare for all.
Another non-negotiable is repeal of the second amendment.
I'd much rather add 52 provinces to Canada. Yes, the District of Columbia and Puerto Rico would be their own provinces.
I'm pretty confident they might balk at a few.
None of the Maritimes provinces would never be states. A single maritime state makes sense. Similarly, Saskatchewan is never going to be a state. That would be a bigger mistake than allowing North and south dakota to be states rather than just dakota.
All of the Canadian provinces except Prince Edward Island have bigger populations than Wyoming. That means nine new states; PEI would probably have to be merged with New Brunswick.
It would be darkly hilarious if the US annexed Canada, thereby cementing utter Democratic party dominance for the next 40+ years.
And gun control. Don't forget gun control. Legalised MJ. Free access to abortion.
Socialist hell. Wait until you meet our Post Office ;-). (I know USPS is hardly to write home about -- the letter will never arrive!).
NO!!!!!
It's been pretty clear since Trump's first term that he's never worked in manufacturing, logistics, supply chains, or any kind of production for all. "Business" for him is sitting in boardrooms, court rooms, and country club dining rooms; contracts, TV shows, golf courses/hotels (i.e. the service industry), and real estate. Add to that the standard rich person thinking of, "I just pay money and stuff just shows up on my doorstep". Arguably, he even thinks these kinds of facory-based jobs are beneath his interest, if not outright worthy of contempt.
With this mindset, it's easy to assume that things will just continue to show up at your doorstep, easily and without friction, no matter what happens. Bur that's not how it works in reality, and we're all about to pay the price for his myopia.
But...he got a business degree from Wharton, where, I understand, he graduated in the top 92% of his class.
An UNDERGRADUATE degree. After he was admitted as a transfer in his Junior (? I think) year, after his dad made a generous donation. He doesn't have a Wharton MBA.
The admissions officer iirc was a good buddy of Trump's older brother and let him in as a favor to the family. His professors mostly recall him as a worthless student. Note that he's never released his transcripts. I guess they're being audited or something.
In that time frame, even for the ivy league, transfers was a non-competitive process. There were always more openings than applicants.
"…he graduated in the top 92% of his class."
So, he was 8% from the bottom of his class? I mean, he would be in the top 92% of his class, right?
Are there any interviews with other people who remember him from class? I don't recall ever seeing any.
Many of them are probably dead. Dude's college days were six decades ago--it's not clear how many memories there would be of that time, let alone how many people to hold them.
But I've been wondering, did he even go to classes?
You'd be amazed how far back one can remember.
I can remember some university classmates and teachers like it was yesterday. If they stood out for whatever reason.
It's amazing how the USMCA went from the most bestest trade deal ever to the worst. So much for the great negotiator. Fucking idiot couldn't negotiate his way out of a paper bag.
My assumption is that the tariffs are just another Trump saber rattling ploy. What he wants out of it is anyone’s guess (mostly a bully’s power move I suppose), but I do think they will be postponed again, or perhaps be in place for only a few days.
It's all he's got. It's his only play. He has no concept of how to negotiate, except to bully people he sees as being in an inferior position. See also today's renewed threats against China, and his treatment of Zelenskyy.
He's a terrible businessman -- failed hotels, golf courses, branded merch, casinos ffs -- and generally pretty stupid by all accounts. He's a relentless salesman with a knack that was very much in the right place at the right time, but otherwise he's a loser.
+10
And he can sell caskets in Ukraine. Big win for Trump Inc.
It plays to the MAGAts; it looks like strength to them, and feels like it to him.
Can't someone take the administration to court on tariffs? Loads of people and firms obviously have standing.
I realize back in the 1960s Congress authorized the executive branch to levy tariffs based on national security reasons, but this authority is plainly being abused. I think at this point the executive branch's abuse of the law constitutes an unconstitutional separation of powers violation: only Congress can tax.
The Supreme Court, historically, is extremely reluctant to wade into a disagreement as to what constitutes "national security." You expect this Supreme Court to be any more enthusiastic about doing so?
I keep getting from wingnuts that they hate Trump's foreign policy but absolutely love his domestic policy.
Well, wtf? It's the same policy!
Destroy Russia's enemies while stealing as much as he can carry away. There is no other policy going on here.
+1
They assume that his domestic policy consists largely of hurting woke libs and that they'll be sitting pretty in the new Reich being created by Muskrump. That may not work out the way they think.
So many faces. So many hungry leopards.
Someone here said a while back, that lots of people think that after the chaos, they will be the one sitting on the throne made of human skulls, when in reality they will be one of the skulls.
Thinking Charlie Stross' "Laundry" series of novels - and the spin-out "New Management" ? They have turned very dark, indeed.
First off, I don't understand how these tariffs would even be legal. We have a broad trade agreement with Mexico and Canada that I recall was signed by ...*checks notes*...one Donald Trump. Second, what the hell does he want Canada to do, exactly, to avoid being hit with these stupid tariffs? Not send such cold air across the border? Hire more of our hockey players?
This is certainly a well thought-out scheme.
What does he want them to do? That's easy. He wants anything he can claim as a win. It doesn't matter if it has any actual importance. Just look at the "concessions" Canada and Mexico made a month ago. They basically committed to do what they're already doing. If you're looking for substance here, you don't understand Trump.
He also wants to alienate democracies, which he feels will help him to align with dictators and become a dictator himself.
And his base are eating up this nonsense???
Make sure everyone knows this is all on Trump.
Yep. They're all tuned in 24/7 to
PravdaFox News, the official government news outlet and man, it's just morning in America non stop over there. We'll see how effective the MAGA version of hopium is at keeping the rubes in line when they start losing jobs and financial aid for college and the cheapest car they can afford is 20 years old with 250k miles.I'm driving one of those cars now. I guess I'm already sitting on the throne (no, not that throne).
Destruction of domestic supply chains commenced a long time ago but it is accelerating.
I should move to France,
https://www.youtube.com/shorts/peACqU3xx8k
As a true patriotic American, I hope Canada slowly, carefully, excruciatingly, inspects inch-by-inch every truck, every plane, every train, that crosses into America, searching relentlessly for fentanyl and illegal migrants. Also stop the Canadian tar sand oil from flowing through the pipes into the Midwest, because fentanyl might be mixed into the oil. And stop any electricity going into America, because some illegal migrants might be using it.
And so what if economic activity stops, causing an instant recession? At least America will be free of Canadian fentanyl.
These inspections would stop when Trump thanks Canada and lifts the tariffs.
It's actually a mutually-assured destruction, aka MAD Economics. Canada will, after all, implement matching retaliatory tariffs. That will cut back total GDP on both sides of the equation, cutting back jobs, etc., even while prices go up.
I was just reading a market report from the HVAC and water heating sectors - they are already in a parts crunch because they go on just in time delivery. Many of their parts are made elsewhere, which can be changed over time, but people better hope their stuff doesn't break in the meantime.
I assume auto parts is similar.
Unbelievably Just In Time. Toyota Production System. See James Womack "The Machine that Changed the World".
Estimate is one auto part can cross US-Mexico and US-Canada borders 8 times on the way to being a car.
Just across the Detroit-Windsor Bridge. The owner of that bridge blocked construction of another bridge for decades - lobbying in the MI state legislature. Eventually Canada paid for the construction of an entirely new bridge, primarily to cut c 45 minutes-2 hrs out of delivery times into Windsor or into MI.
What a fanatic always wants is suffering (of others).
When have they ever delivered anything else?
As of now, major indexes down about 2-3%...
Trump's economy. Gotta love it (or else!).
A pattern seems to be emerging,
Step 1) Trump announces huge tariffs, stock market tanks,
Step 2) Trump “negotiates” a deal and delays the tariffs, market recovers.
Someone who knew in advance when each of those things was gonna happen could make a killing in the market, just sayin…
Get ready for stories about potash.
Used in fertilizer, and almost all of it comes from Canada.
It's a big deal.
Canada will survive. A worst case estimate says that Trump's tariffs may cause as much as a 6% reduction in Canada's GDP, which is a severe recession, but no worse than the covid recession.
OTOH, Ontario's premier is threatening to cut off electricity exports. If Quebec follows suit, the whole Northeastern United States could go dark, or at least suffer rolling blackouts. Canadians are peaceful, but not pacifists, as their national game demonstrates. Trump is about to learn the cost of picking on someone who can and will hit back
Although Ontario exports lots of electricity to the USA, at peak summer periods it imports from the Midwest, I believe. So a ban on cross-border electricity transmission could lead to blackouts in Ontario.
(Although if there's a severe recession in Ontario, maybe less need for electricity).
A greater problem is the Ontario grid is synchronised with the midwestern one. In effect they are one electricity system. Isolating a major part of that could lead to all sorts of grid stability issues.