Trump tariffs - a good idea?

Regarding trade with Canada, three issues are often misunderstood.

1. What are the effective tariff rates?

Most of us have heard about the high tariffs that U.S. businesses pay to Canada for the export of dairy and (some) meat products to that country. It is absolutely true that Canada can impose astronomically high tariffs, such as these: milk 250%, butter 290%, whey 208%, cheese 240%, poultry 238%, and some animal meat 265%. However, effective rates can be higher or much lower.

Media reporters usually claim that Trump has overstated these tariff rates because they do not take effect until certain export levels are reached. Since those export levels are rarely attained, the real tariff rates are very low or nonexistent. For example, CNN’s so-called “fact checker,” Daniel Dale, puts it this way:

“Those high tariffs kick in only after the US has hit a certain Trump-negotiated quantity of tariff-free dairy sales to Canada each year — and as the US dairy industry acknowledges, the US is not hitting its allowed zero-tariff maximum in any category of dairy product.”

However, so-called fact checkers almost always ignore another part of the story — one that President Trump has mentioned several times: “non-monetary tariffs.” In some cases, those non-monetary tariffs are the reason U.S. exports rarely exceed Canada’s “allowed zero-tariff maximums.”

The term, “non-monetary tariffs,” is Trump’s moniker for the myriad protectionist policies of our northern neighbor. Canada uses many tools, in addition to tariffs, to block countries from selling products and services to Canada’s businesses and citizens, and to keep imports from exceeding the allowed zero-tariff maximums. This is particularly true for the dairy industry.

Here is a list of the top ten non-tariff trade barriers employed by Canada, as prepared by World Integrated Trade Solutions (WITS), which is a statistical tool developed by the World Bank:

1. Consumption taxes, including a 5 percent national sales tax, an even higher liquor tax, and separate provincial sales taxes

2. Product quality and/or performance requirements (e.g., growth hormones are not permitted in Canadian cattle)

3. Various certification requirements

4. Product registration requirements

5. Overly restrictive technical barriers to trade (e.g., special requirements for the composition of cheese, and special front-of-package labeling requirements for certain ingredients)

6. Testing requirements

7. Traceability requirements

8. Traceability information requirements (identifying the components of the supply chain for a product)

9. Export subsidies to boost Canadian businesses competing against U.S. businesses

10. Special packaging requirements

In addition to these top ten requirements there are other trade impediments, including quotas, differing trade requirements for each of Canada’s ten provinces, and certain limitations on foreign ownership of Canadian businesses. Although many of these trade requirements may be beneficial to Canadian consumers, some appear to be unreasonable obstacles designed to impede foreign exports to Canada or, in some cases, designed to promote Canadian businesses that are competing with U.S. businesses.

To be fair, the United States has its own “top ten” list of non-monetary tariffs, and in many cases, they are similar to those of Canada. However, in total, the United States has fewer such restrictions. According to WITS, the top-ten non-monetary tariffs in the U.S. cover 61.5% of all U.S. products, while the top ten non-monetary tariffs in Canada pertain to 95.5% of its products.

In truth, Canada has a long history of protectionism, and President Trump is not the first to complain about it. In an article published in Policy Options, professors Bernardo Blum and Walid Hejazi lament the negative impact of Canada’s protectionist policies on economic growth:

“Canada’s economy is already characterized by significant levels of protectionism. Studies from a wide range of sources, including the Bank of Canada, highlight the significant costs that such protectionism has on the economy.”

In an article published by Joseph Quesnel, a senior research fellow with the Frontier Centre for Public Policy, the author issues this advice:

“Canada should resist reactionary protectionist measures and instead focus on removing internal trade barriers — a longstanding economic challenge that continues to fragment the national economy.”

When Canada’s tariff rates are assessed in combination with its protectionist policies (i.e., its non-monetary tariffs), it is clear that the effective tariff rates may be quite high.

2. Are trade deficits an accurate measure of trade fairness?

President Trump has complained repeatedly about the U.S. trade deficit with Canada. In 2024, the U.S. purchased $63 billion more goods and services from Canada than vice versa. In other words, the U.S. had a trade deficit of $63 billion.

In a pathetic effort to make Trump appear to be wrong, some “fact checkers” note that the U.S. actually had a trade surplus in 2024— if we remove the U.S importation of Canadian oil from the equation. But...why would we do that?

Actually, the former president’s complaints about the trade deficit may be understated, rather than overstated. Some economists lament that Canada’s protectionist policies make its industries less efficient than those of the United States. For example, Blum and Hejazi have reached this conclusion regarding Canada’s protectionist policies:

“Higher prices, which are then transferred to consumers from firms within protected industries, are often the end result. Just think of telecom, banking, air transportation and supply management, where there are significant restrictions on foreign participation. Protectionism in these industries has resulted in restricted supply, reduced variety, and significantly higher prices.”

Less efficient industries tend to produce less valuable products. If that is the case with Canada, then it is likely that the people of both countries would purchase more American goods and services than Canadian goods and services, at any given price level. That would create a U.S. trade surplus. It would be the norm.

3. President Trump needs to discuss the issue of trade with more consistency and transparency

With tariffs, President Trump is trying to achieve two distinct goals, but he does not always identify and distinguish between them. As a result, Canadian leaders and the general public may be confused.

Trump’s first goal is to reduce fentanyl poisoning in the United States. To achieve that worthy goal, the U.S. is imposing a 25 percent tariff on many exports from Canada, ostensibly to motivate Canada to find ways to reduce drug trafficking over the border. I believe that the high fentanyl death rate justifies Trump’s tough stand.

Trump’s other goal is to reduce the trade deficit and achieve trade parity. However, that is supposed to be the purpose of the reciprocal tariffs that won’t start until April 2, 2025.

The issue of reciprocity is not as simple as it sounds. Will the reciprocal tariffs imposed by the U.S. exactly match the corresponding rates charged by Canada? Or, will Trump charge an additional rate to compensate for Canada’s excessive “non-monetary tariffs” (i.e., the protectionist policies itemized above)? As an example, will the U.S. match the 240% Canadian tariff on cheese, or will the U.S. rate be even higher, to compensate for the onerous requirements regarding the exact “composition of cheese”?

I applaud Trump for establishing these two goals, but he must distinguish them clearly.

Finally, the President should continue to honor the United States-Mexico-Canada (USMCA) trade agreement while it is in force. Under terms of the agreement, it can be terminated or renegotiated in July 2026, if any signatory so wishes.