Trade Policy Trump Style

 

Just about the time you thought we had this wrapped-up, last Friday trade talks with Canada collapsed.

This is fascinating to me inasmuch as just like the decision to go to war with Iran; this administration leaves each and every last decision on all matters of trade and war, including right down to each and every last country, including terms, to the whims of one sole individual. 

Mr. Trump.

And just like Groundhog Day, every day can be a repeat of the prior or maybe something different; all dependent-upon Trump's mercurial personality, his feelings of self-aggrandizement in the moment and generalized impulsiveness.  Some days are predictable, most are tolerable; while the worst ones are like dealing with a whining toddler tossing toys out of his crib.

Mr. Trump's obsessive trade war with Canada is based-upon an imbalance of trade with the United States that is driven entirely by globally-needed oil. They don't like to talk about; but I'll make it simple enough for a layperson to understand.

An interesting factoid is that the US merchandise trade deficit with Canada is essentially an energy story.  In 2024 the US ran a $64 billion goods deficit with Canada, but that deficit disappeared and became a $34 billion US surplus when energy was excluded.  The US also ran a roughly $24 billion surplus specifically in manufactured goods.  Canadian energy exports, namely crude oil, account for the bilateral deficit.

In other words, Canada isn't beating American manufacturers in some broad-based flood of manufactured goods.  Canada supplies the United States with enormous quantities of energy that the US economy needs, while the United States sells Canada more manufactured goods than it buys from Canada.    

That doesn't mean every Trump tariff policy toward Canada is necessarily motivated by the headline trade deficit; Washington has cited border security, fentanyl, autos, steel and other issues.  

In 2025, the United States ran a $46 billion goods deficit with Canada, but it also ran an approximately $85 billion net deficit in energy trade. The implication is that the United States' overall goods deficit with Canada was not the result of a generalized Canadian advantage in manufactured goods; again it was overwhelmingly an energy phenomenon, offset by U.S. surpluses in other categories.

Nevertheless, if the argument is that America is being economically victimized by a one-sided Canadian trading relationship, the numbers don't stack-up.      

This time, and perhaps because the world needs North American oil; and possibly as a consequence of Mr. Trump's ill-advised unilateral war, it looks like Canada has its sights on our looming midterm elections and is digging-in for a protracted standoff with Trump.  I suspect with hopes for a change of venue in their on-again, off-again trade talks with the administration.   Other countries around the world are watching too; following how tit-for-tat retaliation works with Trump's personal negotiation style.  My sense is that Canada is willing to wait this out as post-election the ground may shift enough giving Democrats the upper hand in the House and providing some breathing room and space for normally trade-minded Republicans to find their balls.  Perhaps the Senate is in play too?  Who knows?  Time will tell.

Canada's retaliatory tariffs won't go into effect until after Labor Day and are likely to focus on things like appliances, agricultural equipment, minerals, steel, dairy, pulp and paper.  If Mark Carney were to take a page out of Ontario Premier Doug Ford's playbook, Canada will focus on taking a shot at Trump's base in both key swing states with significant trade ties to Canada (Michigan and other Midwest and Great Lakes states come to mind) along with critical red states such as Texas and Florida.  I can sense Canada's growing outrage and frustration.  After-all, Mr. Trump commenced his second term with demands that Canada become the 51st state.  

Brilliant.  

If Canada's first impression was that Trump is simply a garden variety asshole; I suppose given everything that has transpired since, he's gonna always be an asshole.   

Remember the guy who claimed that the tiny island nation of Madagascar was picking on us?  Yup, Howard Lutnick.  Whispered Palace Intrigue would suggest that the recent deal fell apart when Mr. Lutnick got bent out of shape over his impression that US Trade Representative Jamison Greer's dealmaking strayed onto Lutnick's turf; namely automobiles, steel and aluminum.  Imagine that; infighting among administration supplicants and sycophants.  In the mean time, the relationship with our single largest trade partner on the planet suffers and US consumers pay the price.

I cannot predict where this ends as I no longer have my crystal ball.  That said, and because we're only a couple of months from the mid-terms, I'll go out on a limb and predict Canada imposes more pain on American consumers who are already restless and grumpy about Mr. Trump's sloppy war and haphazard trade policy.  Between now and the election there will be an abundance of overblown reality television drama-style nonsense before we learn how this ends.

Meanwhile, as far as negotiation tactics go, Trump’s tariff threat hurts US automakers and consumers more than anyone else.  If anybody is under the impression that all Canadian auto and parts production will be re-shored in the US in the next four months; they are certifiably delusional.  That is a MAGA fever dream.

In closing there is this.  Further evidence that import taxes (tariffs) are ultimately paid by consumers; Mr. Trump is ostensibly and temporarily lifting them on imported beef.  And if you think temporary antics like this are a substitute for intellectually-solid trade dynamics or that the price of a Whopper is going to go down I have a bridge to sell you.

Such is the result of leaving decision-making on trade entirely in the hands of an impulsive and incurious individual.  Just like like a war in the Middle East that has gone south; you're gonna get sketchy results....