Rivers: 'It’s not a trade war - It’s an opportunity'

By Ray Rivers

January 26th, 2025

BURLINGTON, ON

 

Instead of panicking about Trump’s promised 25% tariff wall which he is building on his northern and southern borders, we should embrace it.  We should congratulate Mr. Trump on what he is doing rather than threaten him.  We should join him in implementing similar measures here.

Trump wants to reduce income taxes in his country but still needs the revenue.  So his idea is to take America back to the day before income taxation constituted the bulk of government revenue.  And import tariffs are the instrument he has chosen.  Trump may well be signalling history.  After all the British refusal to allow the 13 colonies to impose tariffs to protect their emerging local industries was one of the causes of the Revolutionary War.

President Trump said he would levy 25% tariffs on Day 1 of his presidency. Moved that date back to February 1st.

Progressive income taxes are the most equitable of revenue-raising options for an economy.  But the wealthy have always resented paying more than what they consider their fair share.   So, many Western nations during the right-wing revitalization of the 1980’s, including the UK, New Zealand, and Canada, were able to lower or restrain income taxation by introducing a general sales tax, the value added (VAT), or in Canada, the GST.  But Americans have always rejected a national sales tax, and instead have relied on debt financing as an alternative to deal with budgetary shortfalls.

A tariff acts like a sales tax and it can generate revenue for the government of a country with a high level of importation.  Unlike a general sales tax, however, it applies only to those choosing to buy imported products.  In the end, it strengthens the domestic economy by discouraging the purchase of foreign-made goods.  Eventually, by keeping more money and industry in the economy the national economic framework becomes more resilient, possibly preventing the kind of supply blockages and accompanying inflation we all experienced following the pandemic.

Over the past 70 years, tariffs have never accounted for much more than 2% of total US federal revenue.  For example, $77 billion was collected last year, accounting for approximately 1.57% of total federal revenue.  About half of industrial goods imported into the USA are only subject to an average 2% tariff, while the other half enter tariff-free.  For a nation which wants to bring manufacturing back home, raising import tariffs is a perfectly reasonable approach.

According to one estimate, a 10% general tariff could raise almost $3 trillion for the US treasury and a 20% tariff would be more than enough to pay for Trump’s planned income tax cuts for the wealthiest Americans.  As a consequence of the 10% tariff, the cost to US households is estimated at $1,253 on average and a 20 percent universal tariff would almost double that.  In the longer run, as people switch to more American-made goods and services those economic costs would decline.

Of course, tariffs will have a depressing effect on the overall economy, particularly in the short run, but President Trump’s view is likely more geared to the longer run.  Trump often references former president McKinley who brought in the Tariff Act of 1890 with import duties as high as 49.5% on some goods.  He regards the former president with such favour that he has renamed Mt Denali in McKinley’s honour.

Globalization is dead.  The GATT (General Agreement on Tariffs and Trade) is rapidly losing favour and the so-called free trade international agreements are becoming obsolete.  Canada and Canadians need to face that reality.  Instead of threatening retaliation for Trump’s tariff wall, we should be embracing it.  We should start by revoking the USMCA agreement and selectively deciding which tariffs better suit the expansion and development of Canada’s economy, rather than which would most hurt our American neighbours.  With a population now greater than 40 million, instead of hewers of wood and bearers of oil, we could once again become a sustainable manufacturing economy.

Donald Trump will not be swayed from his course by banning the import of California wines or Kentucky bourbon.  And imposing export tariffs on western oil, or banning its export would just provoke another national constitutional crisis and greater conflict with our closest neighbour and ally.

Alberta Premier Danielle Smith meeting with President Donald Trump at Mar a Largo

Alberta’s Danielle Smith has a point.  Trump has been anything but friendly to Canada and Canadians, but that is Trump and not the mainstream of America.  Rather than confront him, we should join him.  Start by setting tariffs on imported goods and services which we can make and still want to do here.  And we can use the tariff revenue to pay down the debt or reduce the GST rate.  The GST has depressed our economic welfare greater than any number of protective tariffs likely would.  And NAFTA has diminished Canada’s ability to provide for itself and generate wealth.

Remember that only those who insist on buying imported goods will be paying the tariff.  And there are many good Canadian whiskeys for those with bourbon tastes.  Also, perhaps it is time to look beyond tariffs to non-tariff instruments.  After all, Pierre Trudeau’s Canadian content rules turned this country into a global music-producing nation.   As for North American auto manufacturing, we need to reach back to the 1960’s Canada-US auto pact for inspiration.   When all factors are considered, that policy, not NAFTA, turned out to be the most successful trade policy in our nation’s history.

Ray Rivers, a Gazette Contributing Editor, writes regularly applying his more than 25 years as a federal bureaucrat to his thinking.  Rivers was once a candidate for provincial office in Burlington.  He was the founder of the Burlington citizen committee on sustainability at a time when climate warming was a hotly debated subject.   Ray has a post graduate degree in economics that he earned at the University of Ottawa.  Tweet @rayzrivers

 Background links:    

US Trade Policy      US Tariff Revenues   Canadian Tariffs

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10 comments to Rivers: ‘It’s not a trade war – It’s an opportunity’

  • David

    I agree with this article as a point of discussion; this will be the most important gift you will ever be able to leave to your Grandchildren. I will be skipping over a lot and try to keep this short. Also, I have no skin in this game other than I have a huge affection for ordinary Canadians. I have been active in my criticisms of this current government, but Canada’s problems go back to the slow decline of the Empire and are shared by other colonies who struggle with identity and rely on entrenched descendants of past imperial nabobs who search for yet another Empire to latch onto.
    What Trump wishes to accelerate in the Western Hemisphere is ‘Fortress America’ The faster this is done, the easier and cheaper it will be; tariffs on imports will, as this article mentions, generate an enormous windfall born by the American people, what that windfall is supposed to do is re-tool and industrialize America replacing services as the current economy with manufacturing; as history reminds us you can’t prosecute a war without a strong manufacturing sector, history also reminds us that a free market and free society creates innovation.
    Trump doesn’t hide the fact the West is in trouble, he broadcasts the fact loud and clear. He does not belong to any secret society, and he does not try to hide what he’s thinking from anyone, he wants to generate discussion, but he wants it on the fly, not mired in endless debates; if any of you have been involved in any meetings with Americans you will notice nobody is leaving until a decision is made,
    Does Trump want to invade Canada? Greenland may be in itself an answer, positioned as it is, overlooking the 350km entrance of the N/W passage with Alaska at the exit or visa versa, does America want a 51st state at this time? Probably not, they have enough to do, what they would like however is a Canada that is not dependent on America, but is an independent economically healthy nation state.
    why is this all happening now? because it isn’t. This has been realized for at least a decade behind the doors of academia and in the pages of the less-read periodicals.
    Currently, Four in ten (43%) of Canadians aged 18-34 would vote to be American if citizenship and conversion of assets to USD were guaranteed
    https://www.ipsos.com/en-ca/43-percent-canadians-would-vote-be-american-if-citizenship-and-conversion-assets-usd-guaranteed
    That would be the youngest of Gen-X, all the Melenials, and half of Gen-Z, right off the bat that’s 43% of the working population of Canada, (for context the ages of the Founding Fathers of America on July 4, 1776, James Monroe, 18 Aaron Burr, 20 Alexander Hamilton, 21 James Madison, 25 Thomas Jefferson, 33 John Adams, 40 Paul Revere, 41 George Washington, 44.) and those 43% are currently spreading the word to the other 57% via social media.
    Rather than the world becoming overpopulated, it is declining fast, and in every country except some parts of Africa, what will this look like in a decade, good, bad or just another part of another evolutionary cycle as when the Boomers were born? Canada’s solutions are not big picture and should be shared openly with all Canadians, the steps taken should be small but many; otherwise, they will be drowned out in discussion and protectionism. Free and unprotected trade between the Provinces is a good place to start; I know this will create awkward questions regarding the Monarchy, our Constitution and Quebec, which are already being discussed among geopolitical economists, when Melenials start taking over they will not be mired in tradition, as one economist said, some hard decisions await them when they get a look at the books.

  • Ray Rivers

    Graham, Thanks for your comment – indeed that was the WTO ruling and the WTO also ruled Trump’s previous tariffs were illegal. And both Trump and Biden have ignored that ruling making the WTO an irrelevant anachronism in today’s world.

  • Tom Muir

    Ray has a very good point. What has done the U S economy in, and what Trump is objecting to, is basically his open economy, or Free Trade – the US economy has very low average tariffs at about 5% – 10% from what I have read.

    Prior to 1973, the average Tariff level was about 30 – 40%, but at that time, the level was reduced much lower, in steps, to the present low average level. This liberalization policy progressively hurt 80% of the working force in terms of their annual wages and standard of living. The manufacturing and industrial sector was decimated. Where do you think MAGA came from.

    Trump basically appears to see this situation, and the huge trade balance deficit the US has in the rest of the world. Canada has a surplus balance, and Mexico has a much larger surplus in the NAFTA agreement with the US. Word has it that NAFTA will be a policy target to be rescinded.

    To correct the damage that free trade has done to the US, in the eyes of Trump, could involve many changes that, as Ray says, trying to fight them all, tit for tat, will be shooting ourselves in the foot, with Ray outlining some of them.
    One response is replacing exports of oil and gas the the US, with domestic use at home, by investing in transport options from West to East.

    I recently read that this situation has prompted the asking of the Fed to reconsider their refusal of a proposed pipeline Eastbound to supply ourselves with our own oil. Trade is also polluting activity, and cumulatively, International Trade is the greatest travel mode pollution emission source of all.

    Wherever we trade the same products with the US, that we both manufacture or produce, in different locations, that is an opportunity to reduce our exports to the US, and they reduce their imports. This situation reduces the US Trade deficit, and our cost of the tariff. This can work long term and reduce the National Unity crisis that is inherent in the Trump actions.

    Trump says that he does not need Canada’s oil and gas, and I see in his plans something like what I just described. I also see this situation possibly inherent in many situations where some call for retaliation only, which will be very costly and futile debt costly unwinnable fights.

    I have been reading a book titled;

    Myth of Free Trade : The Pooring of America – by Dr Ravi Batra – 1996 paperback
    or
    The Myth of Free Trade: A Plan for America’s Economic Revival – Hardcover
    Batra, Dr. Ravi,

    This book starts off with ending free trade and the tariff amount in steps over 5 years is up to 40%. Trumps start for us is another 25%, on top of their 5% average or Rays suggestion of US 10%, which totals to 35%. The policy frame in this book provides an explanation of the history of the US economy that fits the historical data. To me, it is a must read if you want to be equipped to be conversant for the
    next 4 years.

    I think the essence of Ray’s article is on the mark – see the opportunities, work together, and save ourselves. Trump running the USA?- think about it.

    Author Note. I am a theses away from a PHd in Economics. Rusty and still learning, but worked in it since 1971.

    Editor’s note: The correct spelling for a doctorate is Phd. I pity the sponsors who will have to read something you started in 1971. That would be beyond rust.

  • Fred Pritchard

    All right Ray, let’s hear your recommendation for a very good Ontario red wine?

  • Gary

    Generally, I agree we should do everything possible to support our own economy, without making any special effort to piss off Trump and company. As you mentioned we should place selective tariffs on exports that we can easily produce and consume domestically. We can buy locally as much as possible. and eschew American products, unless there is no alternative. This is also the time to reach out to other potential trading partners and get rid of those well-known internal barriers to trade between provinces.

    I am not sure simply cancelling the current trade agreement is necessarily a first good step. This is Trump’s own agreement and we should first try to employ the mechanisms under that agreement to seek redress from Trump’s unilateral tariffs which may well be in violation. If it does not satisfy, then may be the time to pull out.

    Some of the history of American tariffs could be instructive. Trump imposed tariffs on South Korean and Chinese washing machines to bail out Whirlpool during his first term. It worked, but not in favour of the consumer. Whirlpool simply raised its prices to the same tariff levels. The Smoot-Hawley Act of 1930, which raised big tariffs to protect domestic producers in the U.S., largely backfired, credited with prolonging the Great Depression.

    But just for fun, we should advise the Danish government that should they decide to sell Greenland, Canada would like to put in a competitive bid. If it did nothing but simply cost the U.S. more money, it will have been a success.

  • Ted Gamble

    The panic and crisis have been entirely caused by Justin Trudeau.

    The Liberal Party is desperate to coronate Mark Carney as their Leader and install an unelected absentee Prime Minister in Canada. Just look at the farce of a contest and sixteen and growing number of cabinet ministers supporting the “humble”
    Carney.

    Carney with his well-known ideological beliefs that parallel Trudeau’s is an unbelievably unwise choice to negotiate with Trump. He would be my last choice.

    It is all about the Liberal Party at the expense of Canada and Canadians. The country suffers and is on hold until sometime after a federal election occurs.

    Editor’s note: Those Cabinet Ministers endorsing Carney might make some people feel they should support Carney. I’d like to see how he handles himself as an elected ember of the House of Commons. His comment that he has always come in at the top struck me as about as arrogant as you can get.

    At this point it is the members of the Liberal Party who will choose who they want as party leader. If you want a say in that process – join. It is a ranked ballot.

  • Philip

    It would have been an opportunity if Trudeau didn’t continue preaching that there was no business case for LNG; it would have been an opportunity if the Liberal government hadn’t driven the final nails into the Northern Gateway and Pipeline East projects. There was always a business case for energy projects but for Trudeau and the Liberals, ideology was far more important.

  • Graham

    The auto pact was judged by the WTO to be illegal and cancelled in 2001.

  • Carol Victor

    Do you really think that Trump thought this through as much as you have?
    I refuse to believe that with his ridiculous appointments to his cabinet, the pardoning of criminals, his denial of climate change and his mass deportation policy that he is as bright as the credit you have given to him.

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