Why Trump’s New Tariff Is Bigger Than Canada | Diving In

President Trump just hit Canada with a new set of
tariffs in their big fifty percent. Look, this is a
big deal. He's sending a message to every other country watching.
They're waiting for the next round of the global trade war.
The message is simple. It's not actually about Canada. It's this.
It's if you retaliate, your trade deal may not save you.
Canada was just the first one to find that out. So, yes,
this is a story about a fifty percent tariff on
Canadian goods. We'll get into that. But it's also a
story about whether executive power can be used this way,
about America's place in the world, about whether we the
United States, is capable of coming to terms with and
living up to a trade agreement, and about what the
White House may be trying to signal to every other
trading partner right now. Fundamentally, it's a story about the
future of our economy. Now. It matters for American family
because ultimately, what the President's doing is imposing taxes on Americans.
He's imposing taxes on Americans who buy stuff from Canada,
another way of saying you, you are paying these taxes.
It also matters for Canada. My rough instant analysis, and
it's very quick and dirty, says, this is a much
bigger deal than the president's most recent volleys in our
on again, off again trade war with our nearest neighbor.
And it matters for the rest of the world and
our relationship with the rest of that global economy because
the next round of the trade war, it's just around
the corner. Okay, So what actually happened yesterday? That was
July twenty The White House posted three proclamations using what's
called Section three hundred and thirty eight of the Tarifact
of nineteen thirty And if you'd never heard of it before,
don't worry. It was on no one's bingo card. This
was a very surprising legal theory. Each one of these
proclamations slaps an extra fifty percent tariff on a different
list of Canadian goods, and those tariffs they're set to
come into effect in a month's time. Given the President
and he's on again, off again nature of all of this,
when he says something's going to happen in thirty days time,
that either means it will happen in thirty days time
or it won't happen in thirty days time, or there'll
be a lot of drama between now and thirty days time.
Take your pick. These disputes, they have these labels. They're
officially over motive vehicles, alcoholic beverages, and dairy. Look, there's
going to be a lot of ink spilled over these disputes,
and you might ask, what is our real beef with
Canadian dairy, booze and cars. Let me save you the time.
The dispute over dairy and boos they're economically tiny. They
barely matter for the US economy at all. The motor
vehicle thing, it's a bit bigger. But it's really about
Canada having retaliated in response to Trump's trade wars. So
he tried tariffs. They they send a few back, and
the President's upset about here that Look, there's really not
much here to these particular complaints other than a desire
to punch Canada dressed up in a novel legal theory.
But this punch, this set of punches, is different. The
White House says that these tariffs hit the list of goods,
whether or not they qualify under our existing free trade
agreement with Canada, that free trade agreements called the USMCA.
Let me put that in plain English. Even if a
Canadian good ticks every box in order to deserve or
warrant preferential treatment under our existing free trade agreement, the
White House has said, we're not going to give you
that preferential treatment the free trade agreement we signed. We're
just going to ignore it. Now, why does that matter
so much? He needs to know a bit of history.
If the US Canada trade war of twenty twenty five
and twenty twenty six, because there was a lot of
tariff chaos early in Trump's second term, I'm sure you
remember it, but having your goods be compliant with the
existing US Canada Mexico free trade agreement was actually really
important to skate patch. So throughout twenty twenty five, the
White House was throwing around these tariff threats would reckless abandon,
but would also quietly ad an asterisk, saying that these
threats would apply to every country and every good, oh,
except for those from Canada and Mexico that would qualify
under our existing free trade agreement. It was a special
deal for our nearest neighbors, I think, mainly to try
and reduce some of the economic havoc that the trade
wars were causing. Well, this turned out to be a
really important eskate patch because almost all of the Canadian
trade that was caught up in those earlier fights actually
qualified has been compliant with our existing free trade agreements.
A Canadian Finance Department briefing said ninety seven percent of
Canadian exports covered by those earlier tariffs were KUZMA compliant.
Came in Judy three. KUZMA. What's that, Well, that's what
the Canadians call the USMCA. It's not a French translation.
They just have different laws up there, but it's the
Canadian name. It's the same deal, different name. So look,
the rough version is something like ninety percent of Canadian
goods were exempt from all of the machinations of the
Trump trade war. Our relationship with Canada. The rhetoric was bad,
but the reality was that we were trading pretty well
with Canada throughout the trade war. Basically, the message was
that if you get your paperwork right, if you qualify
your product, then you get shelter from the storm, the president,
of course being the storm. Now the message is for
this list of goods, the shelter doesn't work anymore. And
that's why this is a much bigger deal than it
might sound like at first. Now I probably need to
give you a bit more history about what's going on here,
And honestly, the history here is so absurd that the
best thing I can do is just line the facts
up and let them do the comedy for you. First
of all, Trump spent his first term telling everyone that
NAFTA was a disaster, and n after was the free
trade agreement between the US, Canada and Mexico negotiated by
President Clinton, passed by Congress. So the first president Trump
renegotiated it. Then he announced the replacement that was called
USMCA rhymes a bit with YMCA, one of his favorite songs,
and he announced it like he discovered fire and fentted
trade and personally rescued North America from him a deal
that the United States had. This is the awkward bit,
the embarrassing bit. We had noticeably already been in the
free trade deal with remarkably similar rules for decades. The President,
of course, held a whole new signing ceremony. There were flags,
people applauded, there were sharpies, but nothing really changed except
the branding. We now had new initials for our new
free trade agreement with Canada, but it was basically the
old one with a new dressing. President Trump got elected again,
and so in the second term he decided he really
hated that agreement that the first President Trump had struck
with Canada, and he kept eating Canada with tariffs anyway,
and then he adjusted them, and then he would carve
out USMCA compliant goods. Then he slapped sectoral tariffs on
other stuff, and then he kept telling everyone that the
trade agreement that inherited from his incompetent predecessor that was
President Trump wasn't very good anyway. And so now here
we are again, same president reaching for a law from
nineteen thirty to tariff Canadian goods even when they qualify
under the trade agreement that replaced the trade agreement that
he blew up in order to write this trade agreement. Look,
this isn't really trade policy. This is a man negotiating
with himself, with his ego and with his poor understanding
of what's really going on. He wanted to write a
deal to replace the deal that he blew up because
he hated the deal that he'd been in. But effectively
that original deal is still where we are it's all
just NAFTA with another name, and this White House can't stop,
won't stop. The White House recently said it's not going
to agree to renew the USMCA, that's the one that
President Trump renegotiated. They're not going to renew it in
its current form. This is more nonsense and more misdirection,
because if the three countries don't agree in the twenty
twenty six review to extend the deal for another sixteen years,
if they don't agree to a sixteen year renewal, then
the agreement, which passed Congress and his law in the
United States, it doesn't just vanish tomorrow. It stays in force.
It shifts from look, we agreed to a sixteen year
renewal to annual reviews. So every year now it's up
for renewal. And if every year they fail to extend
the agreement, guess what, it just continues. And it's going
to continue this way until twenty thirty six. So when
the President says he hasn't agreed to renew the deal,
that just means he's not agreed. But he goes to
his earlier agreement, which is that we automatically renew the
deal and we're going to continue to do so for
another teen year. So what's happening. In reality? We have
a trade deal which keeps renewing, which past Congress, but
also in a different reality, the President's does it off
this nineteen thirty law to say, effectively, we reserve the
right to treat the deal as purely optional whenever it
gets inconvenient, even though Congress passed it. Yes, the courts
are going to get involved. Look, I know that trade
agreements are always a mix of rules and politics, and
fair enough, I get that the whole point of signing one. Well, really,
the whole point of signing one is to create and
understanding you and your partner can rely on each other.
A trade agreement's meant to be like a marriage vow.
It's for better, for worse, for richer, for poorer, and
sickness and in health. And when you marry someone you
can invest more deeply in your relationship knowing that they're
going to be there for you and with you under
those terms in the future. But mate, if NAFTA or
the UMCA or whatever we're calling it these days, as
a marriage this has turned into an abusive marriage. Now
it turns out that the latest renegotiation, by which I
mean the President deciding he's going to issue literally dozens
of pages of new tariffs ends up looking incredibly weird.
And that's because we're going to need to talk about
the novel legal theory behind our new trade war with
Canada on a remind you, I'm not a lawyer, so
I'm just going to sketch out the big details. Okay,
big picture. Remember, the Constitution gives Congress, not the President,
the power of a tariffs in the US was formed at
a revolt over taxes. We thought the people's house, rather
than the king, should handle taxes. So the Constitution gives
all the default powers over tarifts to Congress, which means
if the President is going to do something without Congress,
and that's his determination he's decided to do, none of
the Trump trade war has gone through Congress. Means he
has to pretend that somewhere along the line Congress gave
him the power to host tariffs. Now, the courts have
really forced President Trump to pay attention to this, and
the Supreme Court ruled many of his existing tariffs unconstitutional
and illegal because they didn't come from Congress. So these
new anti Canada proclamations. They learn on what's called section
three hundred and thirty eight of the Tariff Act of
nineteen thirty. This isn't normal trade law plumbing. This is
the White House heading down into the basement to find
an old wrench. It's a dusty, old trade war wrench
from nineteen thirty. It was last years when Herbert Hoover
was still in the building. Section three hundred and thirty eight,
let's the president slap additional duties on a country of
up to fifty percent if he finds that another country
discriminates against US commerce, or if it piles an unreasonable
unequal burden on the United States, and the law says
that the tariff should offset that burden or disadvantage. So
the statute reads at least a bit like it's a
retaliation tool, but it's not a free floating smash whatever
you want button. And the modern analysts that I've looked
at they read it the same way. There was a
February twenty twenty sixth briefing from my friends that the
Peterson is for International Economics, which called section three thirty
eight quote an untested retaliatory tool and said that it
had never been used to apply to a tariff, although
it has been threatened that way over the years. It
does sound like though it's meant to invoke some degree
of proportionality in the response. So look this law. It
is weird. It's a weird way of moving forward. And
that weird law is where you get a weird list
of the things that the United States now is going
to taraf Again, I want to remind you, let's go
back the proclamations from the President say we've got a
complaint because we've got dispirites around cars, around alcohol, and
around dairy. Now, it doesn't mean that in return, we're
going to put tariffs on cars, booze, and milk or cheese.
But what we're actually going to do is hit a
random rab bag of goods that the US imports from Canada.
So there's a long annex, many pages that tells you
what goods we're going to hit. Now, the White House
has carved out a bunch of stuff that it says
we really want from Canada. We're not going to tariff
those things. That's energy, pittash, critical minerals, certain aircraft goods,
and everything that's already under Section two thirty two tariffs.
So what you end up with, for instance, is a
proclamation about our complaints about how the Canadians are treating
American cars, and then we're going to impost tariffs on
all sorts of things that have nothing to do with cars,
so honey and flowers and cement and plastics and furniture
and telecom gear. Basically, US tariff policy has discovered the
US Canadian junk draw and that really is the explanation
for what's going on here. Okay, what about the economic effects,
I think mostly relatively small direct effects for the United States,
real money for Canada. And what really matters is what
it's going to do to the Americans, America's place in
the world. So let's do some arithmetic. And I want
to show you a little bit of modesty here. I
don't have a polished, huge quantitative model of what's going
on here. I've just got a day one snap instant
analysis which I'm just going to try to get the
orders of magnitude right. What's going on here? My raugh
estimate is that the tariffs that are listed o but
literally dozens of pages of a presidential proclamation. I want
to note to you, by the way, the White House
never says anything about what they think the economic consequences
will be. That apparently is a secret. Maybe they did
their homework and they aren't telling us. Maybe they never
did any homework and they don't care. But my analysis
says that these tariffs will probably cover a bit more
than twenty billion dollars of goods that come from Canada
into the United States. That's maybe round about five percent
of what we import from Canada. So it's meaningful without
being huge, that five percent big plus or minus around it.
So for the United States, my reader is basically feeling
modest macro canomic effect with very real microeconomic consequences. Roughly speaking,
it might cost the typical American household fifty bucks, maybe
one hundred bucks, maybe one hundred and fifty bucks a year.
All that's going to depend on what you want to
your economic assumptions about pass through substitutions. And they think, importantly,
when we have less competition from Canada, it doesn't just
hurt Americans who buy stuff from Canada, because that means
less competition for American firms. And so some American firms
now face less competition and they might jack up their
prices too, So the effects here are meaningful, but not giganty.
My friends in Canada, and yes, you are still my friends.
I have a brother who lives in Canada. I love
him very much, but I love all my Canadian friends.
This surreal hit. It's not because it covers all exports.
It doesn't. But roughly speaking, this is going to apply
to something like three percent of Canada's total exports across
all countries. It's nearly one percent of GDP the export
of these goods to the United States, and all of
a sudden, there's a fifty percent tariff wall. Look, that
is the sort of thing the businesses are going to notice,
exporters are going to notice, the provinces are going to notice.
So all of this is going to create uncertainty above
and beyond the specific tariffs that the President is listed.
I want you to realize, though, that this is a slice.
It's a meaningful slice, and compared to a lot of
what was happening earlier in Trump's second term, where there
was the escape patch, that escape patch has gone. There's
a very real and very genuine escalation from the United
States here. And let me tell you beyond just the
spreadsheet lines and the numbers and the industries that are affected.
I've been talking with my Canadian family, with my Canadian friends,
Canadian journals, have been reading the Canadian media, and let
me tell your folks, they are mad. They are hopping mad.
It's not just that they see this as unfair. It's
not just that they see that their free trade agreement
has been breached again rebreached. Is that they see themselves
as being treated poorly, as a horn in the game,
as President Trump not taking the relationship remotely seriously. They,
let me tell you, are sick of this. I've talked
to Canadians have said they will never come to the
United States again, They will never buy an American made
product again. None of that is stuff you can deal
with in a trade agreement. This is a population who
are sick and tired of the United States, and individually
they want to retaliate. And many of them are saying
to me, why Canada, Why now? And I think this
is an important question on both sides of the border. Look,
some part of what the administration is saying as plause
will a lot of it as not the dairy dispute.
It's probably the cleanest rationale on its own. The US
has been whining about the way Canada runs its dairy
tariff quotas for years. The Americans don't like it. Here's
the flip side. The other side is, this is a
tremendously powerful political lobby in Canada. Here's the real dirty
work of how trade deals work. The Americans are meant
to get in a room with the Canadians and they
meant to say, let's try and free up trade. And
basically that's how both NAFTA and USMCA works. And then
both sides sort of said, you know what, I've got
a few political problems at home. I can get most
trade freed up and we can have a pretty good relationship.
You're gonna have to give me a couple of mulligans
here because there's a few industries it's not worth the
political headache. And the Americans list, there's the Canadians list,
there's and what you end up with is never perfectly
free trade, but mostly free trade. The US dairy industry
is one of those areas where it's just going to
be too hard for the Canadians to get it done.
I think they should. I wish they would, but if
I were in charge, of US trade policy. I would
understand this as part of Look, they're most of the
way there. Here's a tiny, economically insignificant industry to the
United States, which is politically very important in Canada. And
so this is the sort of thing where you know,
it's just good grace in a trade agreement to just
quietly admit there's a little bit of politics that makes
us difficult to get to the perfect economic agreement, and
so you know, having a trade agreement doesn't make those
politics disappear. The alcohol dis it's smaller and it's more provincial.
It's basically dug Ford doesn't like Americans buying Canadian wine.
He wants to punch back, and some of the other
provinces have done that as well. It's not coming from
the national government. The motor vehicle fight. It's all tied
up with earlier rounds of tariff from the United States
and retaliation and retaliation from retaliation. I think the point
here is, though, is if you step back from the
legal labels and the novel legal theory here and ask
what's the broader play that we're seeing here, I think
the answer is it's bigger and dairy. It's bigger and booze,
it's bigger in cars. In fact, my interpretation, I want
to be clear, this is an interpretation. It's mine. It
could be wrong, it's probably right. That's why I'm telling
it with Yeah. My interpretation is that actually it's not
about Canada. That Canada is the test case. It's the
punching dummy that we're going to beat up. See, the
White House has gone out of its way to point
out that the only two countries that retaliated against the
United States were Canada and China, and that it went
out of its way to note that that's not just
a complaint, that's a message, and I think you've got
to hear that message in the context of whatever's coming
next in your global trade war. The administration is really
right on the cusp of imposing a whole new set
of tariffs on all of its major trading partners, sixty countries.
I've made another video about they'll try and link that below.
But basically, it's got another legal theory. It's all about
forced labor. I don't believe it's got anything to do
with force labor, but it's got another legal theory where
it thinks it can reimpose tariff's on the rest of
the world. Those new tariffs are coming any week now,
which means that any week now other countries around the
world are facing a moment of truth should they retaliate
against the United States. And I think the answer is
that the United States is trying to say, Hey, look out,
if you retaliate against US, boom, We're coming right back
at you. So by this view, these tariffs, they're not
about Canada. They're actually about the next round of the
global trade war. Hey, I want us to slow down,
step back, and really see the big picture here. Because
the big picture and the lesson I really want you
to take away from this is the value of a
trade agreement isn't in what the text says, just like
the value of a marriage agreement is beyond the precise
promise you say it out loud on your wedding day.
It's more about whether the institutions actually hold the people
in charge to what they say they've agreed to. If
a deal only protects you until the next presidential mood swing,
then what you've got isn't really a rule. It's just
a junk drawer. It's a junk draw full of old
wrenchers and honey and hockey sticks and whatever else. Someone
decided to grab that moment and tariff that afternoon