Will Donald Trump's Tariffs be Bad for Canada

 Yes, but they will not be the disaster that many are saying they will be.

The reason, first and foremost, is the Canadian and US economy are way too integrated. The supply chains for a whole host of products consumed in the US depend on Canadian inputs to work. If they stop then the manufacturing of many products in the US stops. Perhaps, this convinces those manufacturers to attempt to develop domestic sources for those inputs but that will cost billions of dollars, which these companies will not want to spend. In the end they will probably continue to buy the Canadian inputs and wait for Donald Trump to be distracted by the next shiny thing, while heavily lobbying Donald Trump's people to convince him that he should ease off. In the meantime they will just pass the cost of the tariffs off on their customers, who will not have any other alternative.

The second reason is once the tariffs are imposed any domestic US producers will raise their prices to match the new tariff prices for their competitors, minus one percent. So, there would be a 25% tariff on Canadian softwood, then American softwood producers will raise their prices by 24%. In short, the price differential between the tariffed goods and the non-tariffed goods will not be as big as everybody thinks. The tariffs will provide an opportunity of a financial windfall for domestic producers in the US and you do not understand capitalism very well if you believe they will not take full advantage of that.

This applies for all sorts of industries, steel, petroleum products, fertilizer, you name it.

Third, the currency markets will react like all currency markets to the tariffs and push the exchange rate of the Canadian dollar down relative to the US dollar. That will make Canadian products cheaper, despite the tariffs, and further reduce the differential between tariffed goods and non-tariffed goods. 

Fourth, Donald Trump will probably not stop at Canada, Mexico and China. I would bet a fair amount of money that Donald Trump will target the European Union before the end of 2025. A funny thing happened during the first Trump term, when he decided to impose tariffs on the US's biggest allies and trading partners. Trade flows increase between the trading partners and decreased with the US. The Canadian government has been working diligently to encourage Canadian producers to diversify where they sell their products and they have responded. While the US is still our biggest trading partner, the volume of trade with the US has actually fallen in the last few years while trading volumes with other markets has increased. Expect more of the same as more of the Western world turns away from an increasingly unpredictable US market to trade with other more stable western economies. Plus, the Trudeau government has been pushing trade in the non-China parts of Asia with some success. 

The Trump tariffs, if he actually follows through on them, will create some hardship in Canada in the short-term. However, the actions of domestic US producers to take advantage of the tariffs, the currency markets devaluing the Canadian dollar and increase trade diversification will lead to a new equilibrium in the medium-term, again assuming that he follows through on them and maintains them for more than a few months.

There will be no buyer's remorse

I do not know why but the algorithms that curate what I see on social media have been presenting alot of stories and videos claiming that once Donald Trump begins to do his thing alot of MAGA voters are going to regret voting for him.

That is just wishful thinking because the MAGA crowd have stuck with him for almost a decade. If they were going to feel any kind of buyer's remorse it would have happened during the fiasco that was his first term and he would have faded into history after 2020.

Of course that did not happen. Instead he won again, with the same number of votes he won in 2016 and 2020.

There is no reason to believe that his second term will be any less of a failure as his first one. There is no reason to believe that he will not do untold damage to the American economy and society if he manages to implement his promises. However, there is also no reason to believe that MAGA's love for him will diminish as a result of all of that.

Part of the reason for that is MAGA shows many of the same characteristics as a cult. I do sometimes wonder if Donald Trump were to tell is followers to drink the "kool aid" whether they actually would. Hell, he suggested injecting bleach to deal with COVID and I did not hear too many MAGA types say, "Whoa there Donald, that may not quite be right." 

The other part is no one likes to admit that they are wrong. No one likes to admit that they have been conned. No one likes to admit that their whole outlook on life may need to be reexamined. 

So in the end, virtually all MAGA voters will not suffer any kind of buyer's remorse. They will be as negatively impacted by his policies as those who did not vote for him but they will not blame him for that or think they made a mistake. They will find someone else to blame. Or more accurately, Donald Trump will find someone else to blame and they will follow his lead. 

The Assault on Free Trade Begins

And if you would have told me a few years ago that it would be conservatives leading that assault I would have labeled you as being nuts.

Anybody who has read my posts knows that I am not a fan of free trade. I have never believed it lived up to the promise that free trade proponents pushed for the last few decades. In fact, I have always believed that it caused much more hardship and problems for ordinary people than helped them. I have always believed that this would eventually lead to free trade being targeted by those very same people, if someone could come along to galvanize them.

There have been signs that the shine was rubbing off of the free trade rose for some time as I have pointed out a few times on this blog. So it should surprise no one that an American presidential candidate ran on imposing wide ranging tariffs on imports into the US, essentially putting paid to all sorts of free trade agreements the US has with other countries, not to mention their support for the World Trade Organization. What does surprise me is the fact the Republican presidential candidate was the one leading the charge and the Republican establishment going mute in the face of that. After all, it was conservative politicians that lead the push for free trade to begin with, Ronald Reagan, Margaret Thatcher and Brian Mulroney to name three.

An assault on free trade coming from the right instead of the left. Who would have believed that even 5 years ago?

Free trade proponents have no one else but themselves to blame for this. They have failed to keep the promises of programs to assist those who would inevitably lose as a result of free trade. They failed to allow workers, in the industries that were left behind when free trade lead to jobs moving to other countries, to organize so that they could raise their salaries and benefits. They generally failed to believe that causing millions of people to lose their livelihoods would eventually come back and bite them on the ass. Short sightedness and hubris are never a good combination. 

I am also kind of surprised that conservative politicians are contributing to the continued breakdown of the conservative consensus. What a world we live in.

Of course, the proposed tariffs that Donald Trump is proposing will have no other impact than to make things more expensive in the US. The idea behind tariffs is to protect domestic industries but there is very little domestic industry left in the West. Look in any store and look online and you will see that virtually all consumer goods that you can purchase are made anywhere but in a western country. The reason is large manufacturers only need to pay their workers in poorer countries a fraction of what they would need to pay western workers. Doing a quick calculation it is apparent that the tariffs being proposed by Donald Trump will not change that calculus. It will still be cheaper to manufacture goods in China and other countries and ship them to the US than spending billions of dollars to relocate those factories back to the US and pay workers in those factories 100 times what they pay Chinese workers. So the only thing that is going to happen is companies will import consumer goods into the country, pay the tariffs and pass along the cost of those tariffs to US consumers.

The decades of broken promises by free trade proponents were inevitably going to lead to a critical mass of people being against it, ready to be exploited by a politician of some sort. I just bet that they did not see one of their own leading the charge to reverse all of the work they have put in over the last 40 years and their erstwhile allies on the right going mute in the face of it. Go figure.

Why Do Media Types Insist on Being Political Analysts

When they suck at it so badly?

Quite by accident I found myself watching a Global News Broadcast last night and David Aiken was "analyzing" the potential impacts on Canada of a Trump presidency. Part of that analysis was to state that the PM is no longer as strong as he was during the first Trump presidency with Mr. Aiken stating that "Donald Trump can read polls too." 

Of course, this is reference to the public polls stating that the Liberals appear to be in some trouble. Ok, if you are going to talk about Canadian polling during an analysis of the impact of a Trump presidency on Canada at least talk about the right polls.

The party preference polls are irrelevant to that analysis but the polls indicating that over 2/3 of respondents preferred that VP Harris win the White House are quite relevant. I would bet a sizable chunk of money that if a poll is conducted about levels of anxiety amongst Canadians at the prospect of a second Trump presidency a similar proportion would be anxious to very anxious.

I would also point out that when Canadians do not agree with the occupant of the White House they tend to rally around the government when that White House does something Canadians do not like. Jean Chretien received a rather large boost in popularity when he told George W Bush that Canada would not be joining in the second invasion of Iraq, over the protestations of Stephen Harper and the media. That decision is still considered to be one of the wisest ever taken by PM Chretien. The same is true for Justin Trudeau. He received a boost in popularity after the agreement on the new NAFTA treaty. The media tried their best to play down his accomplishment but most Canadians realized that the deal they made was much better than it could have been and they appreciated it.

The new administration is going to be belligerent but it is probably also going to be incompetent. They have also promised to make moves as soon as possible so stuff in going to happen well before next fall. If the Trudeau government can be seen to stand up to the belligerence while taking advantage of any incompetence that will go along way towards "rehabilitating" their image, particularly in the provinces that would suffer the greatest impacts of that belligerence.

All that being said I would caution against trying to discern the exact impact the election of Donald Trump will have on our politics. Whoever occupies the White House usually does not have any impact. Most of the time the President is seen as innocuous and Canadians do not tend to get worked up about them but Donald Trump is probably not going to be seen as innocuous so how the government handles him will be an important issue for Canadians. As well, how a Poilievre government would handle Donald Trump is probably going to become an issue. Our media will try to shield him but I believe that Canadians are not going to settle for empty slogans and constant criticism of the government without them saying how they would do things differently. They were able to do it the first time around but I believe they will not be able to this time. If Donald Trump lives up to expectation Canadians are going to want to know how the two major parties will deal with him and they will want details.

In such a situation the Liberals can point to a track record and the Conservatives cannot. Again our media will try to play down that track record but Canadians will still be looking for substantive answers from both parties and so far the Conservatives have been short on providing such answers for many issues.

The election of Donald Trump has the potential to modify the current political dynamic in this country. How it does so remains to be seen but how Canadians view Donald Trump (which is very negatively) and how the Canadian government deals with him is much more important to that dynamic than the current party support numbers in the Canadian public polls. If David Aiken was the political analyst he believes he is that is that is what he would have talked about last night..

I Guess My Question Was Answered

Last July I asked the question  "Is the US Ready to Elect a Woman of Colour as President?

The answer to my question seems to be an emphatic "NO".

I have been saying since July that the election was going to come down to turnout. As well, I also asserted that the choice of VP Harris as the Democratic flag bearer had the potential to demotivate Democratic voters, who do not like Donald Trump but also do not like the idea of a woman of colour as President, from voting.

It would appear that just such a situation came to pass last night. Looking at the overall number of votes from last night, Donald Trump received around the same number of votes as he did in 2020, so the MAGA cult showed up. However, Kamala Harris only received around 70,000,000 votes which is around 12,000,000 less that Joe Biden did in 2020 and 10,000,000 votes less than Hillary Clinton did in 2016. Democrats stayed home, Republicans did not, hence last night's results.

In the postmortems of last night the idea that VP Harris' skin colour and gender was a big contributing factor cannot be ignored. While it was not the only reason why Democrats decided not to vote it is certainly an important reason why.

It is unfortunate because VP Harris would have probably made a good president and if I were allowed to vote in American elections I would have certainly voted for her. However, racism and sexism have deep, long lasting roots in the United States, that cut across partisan lines, and the US was just not ready for what Kamala Harris represented.

Update: I am seeing online that people are claiming that 20 million ballots are missing and they are demanding they be found and counted. They are not missing for the simple reason that they were never cast. Millions of Americans decided not to participate in the democratic process this year. It is that simple. They will have to live with the consequences.

Update 2: I have complained about this before. For some reason progressives are not as committed to participating in the democratic process as conservatives. We see it everywhere. Conservatives with the conviction of their convictions always come out and support their candidates, even when they may not be the best candidates. Progressives are more fickle. If a progressive politician is not considered the best candidate many will stay home, (or in Canada they decide to vote for a party that has no hope of winning, splitting the progressive vote) usually handing victory to those whose political views and policies are anathema to their own. Unfortunately, they never seem to learn from this mistake.

Is Inflation Dropping Almost 1% in Two Months Good News?

One thing we need to remember is that while the CPI is a measure of the change of prices over time it is also an indicator of aggregate demand and having the CPI fall by close to a whole percentage point in two months should give us pause.

It is just one indicator so you have to look at others to see if the CPI is showing a potential problem but unfortunately they are inconclusive, which is not bad news but it is not good news either.

We will have to wait and see if that big drop is a portent of some nasty economic clouds gathering on the horizon or if it is just the echo of the massive disruption that the pandemic caused and continues to cause.

You all may recall that when we were all sent home in March of 2020 and told to stay home inflation tanked. It dropped so far that for the months of April and May we were actually in deflation territory, with the topline yearly inflation number dropping into the negative and month-over-month dropping significantly into the negative for those two months. Then the impacts of the CERB and other government supports hit and inflation flattened out to around 0 to 0.5 percent. 

In other words, aggregate demand tanked. Everybody stopped buying except for the bare essentials. However, the desire to spend money did not abate, we all just had to wait, causing a huge increase in pent up demand. Then in 2021, when the worst of the pandemic was over and vaccination rates were high enough we all decided to begin spending again with a vengeance. From haircuts to houses we went on a spending spree but before manufacturers could ratchet up production again and the supply chains that had been broken by the pandemic could be reestablished. Naturally, inflation spiked, everywhere, and then the war in Ukraine just made it worse.

That spending spree could not be sustained. It was already falling off before the high inflation and the higher interest rates that came with it caused an even bigger reduction in demand.

So again, demand fell, although not to the levels of the pandemic. That is what we are seeing with the steady decline in inflation in this country over the last year. Like many things in economics the precipitous decline in the last couple of months could just be an indication of an overcorrection, something that happens often in economics. Then again, it could be a harbinger of something bigger and nastier.

We will have to wait for the inflation data for the next few months to determine which one is true. If it is a harbinger then inflation will probably go down again and we should begin to worry. If it is just an overcorrection we should see inflation increase again, probably into the 2 to 2.5% range in the coming months and stabilize there.

Are Republicans Giving Democratic Voters a Reason to Vote

According to the polls the presidential election in the US is close. That is nothing new. It was close in 2020 and it was close in 2016. However, this closeness just seemed to happen in the last six weeks and it happened because Republican leaning pollsters flooded the political scene with polls saying the race is tight. Hell, I believe Donald Trump even stated that his campaign paid for pollsters to do just that.

My question is why? This election is going to come down to turnout. As I have stated before in this space there are more voters who dislike Donald Trump than like him so if they come out to vote he loses. So, it would be in his best interest to attempt to convince them to stay home. However, a race that looks close could do exactly the opposite. 

One of the reasons why Donald Trump won in 2016 was because everybody and their brother was stating that Hillary Clinton would win. I believe that convinced many Bernie Boys to stay home. They really did not like her as a candidate and that combined with the notion that their votes were not needed was all the motivation they needed to sit out the 2016 election. The result is history.

Then after four years of President Trump everybody that wanted him gone came out in droves. The result was an increase in votes for the Democratic candidate of around 6 million in 2020, while the number of votes for Donald Trump stayed at 2016 levels and he was history.

So, if Donald Trump and the Republicans want a result more closely resembling the 2016 election they should be encouraging the notion that Kamala Harris has a much better chance of winning than Donald Trump. That might convince those who do not like him but are also not that comfortable with a woman of colour being President to stay home. A close race may convince them to do otherwise.

If there is some grand strategy for the Republicans to push the narrative that the race is tight I cannot see it. Maybe the Republicans are worried about turning out their vote so showing a tight race would also convince them to show up too. Or maybe Donald Trump does not want to be seen as losing the election going into election day because of his fragile ego. Or maybe it is a whole other reason that I cannot see. Whatever the reason, I cannot believe encouraging potential voters of your opponent to vote is a sound strategy when their are more of them than your own voters. But what do I know?