U.S. Trade Policies - Shaping Global Trade and Canada's Future
The United States and Canada have taken markedly different approaches to tariffs, and the long-term economic consequences for both nations are becoming increasingly evident.
Stephen Johnston, private equity manager and director of Omnigence, says that while the exact motivations of the U.S. government remains uncertain, larger macroeconomic trends offer some clues. Johnston suggests that the U.S. is using tariffs as a means to facilitate permanent tax cuts, an initiative the Trump administration reaffirmed during a congressional address.
In addition to tax reform, the U.S. aims to leverage tariffs to push companies to establish manufacturing operations domestically.
Johnston says that this strategy is tied to national security concerns, making it unlikely that U.S. trade policies will revert to pre-existing norms even after the administration changes.
Furthermore, he says the U.S. government appears to be using tariffs to fundamentally shift how it generates revenue. Traditionally reliant on personal and corporate taxes to fund government programs, the U.S. is seeking to reduce these burdens in favour of consumption-based taxation.
By imposing tariffs on foreign goods and services, Johnston says the administration hopes to decrease taxes on income and capital while increasing costs for imported products. This approach is designed to enhance domestic investment at the expense of trading partners, reshaping global trade dynamics.
Canada, however, has responded with a vastly different approach, pledging to match U.S. tariffs dollar-for-dollar. Unlike the U.S., Canada has not introduced offsetting tax cuts or deregulation measures.
This strategy risks exacerbating Canada’s already weak capital inflows and low labour productivity Johnston affirms. Over time, such policies could further suppress economic growth, increase inflationary pressures, and make it more difficult to balance the federal budget.
Ultimately, Canada's retaliatory stance against a much larger trading partner could prove detrimental. Given that the U.S. economy is far less dependent on Canada than vice versa, a purely reactive approach may do more harm than good says Johnston.