Today, our daily program on President Donald Trump’s threatened tariffs features the insights of Joseph Steinberg, associate professor of economics at the University of Toronto. He shares his exclusive economic modeling for The Hub about the impact of Trump’s tariffs on Canada, America, and Mexico’s economies.
You can read Joseph’s full article here.
The following is an automated transcript. If you are quoting from or referencing this episode, please refer to the audio to verify.
RUDYARD GRIFFITHS: Rudyard Griffiths here, the publisher of The Hub, welcome to this, our ongoing daily video series. We’re calling it Trump’s trade war. It’s real. It’s happening right now. There’s been a reprieve, surprise reprieve, issued yesterday. We’ve got 30 days before potentially tariffs come back, or some kind of Grand Bargain, or grand deal is reached between Canada us. So we’re going to continue this program for you. The goal is to bring you the analysis and insights of our best commentators and writers each day, and today is no exception. We’re exceedingly fortunate to have on the program. Joseph Steinberg, He’s an associate professor of economics at the University of Toronto, and he was out in the hub this morning, day three of Trump’s trade war, with some really interesting economic analysis and research on the impact the GDP impacts in Canada, the United States and Mexico of various types of trade sanctions, policies, retaliation, we’ve got it all, and Joseph joins us now. Welcome to the program.
JOSEPH STEINBERG: Morning. Thanks for having me.
RUDYARD GRIFFITHS: Well, let’s Joseph walk through some of these numbers, because I think they’re important in terms of the modeling that you’ve created. But before we do that, explain to our audience, how did you come up with these numbers? Where? Where do they come from? What’s the basis of the data that we’re going to review?
JOSEPH STEINBERG: Yeah, so that’s a great question. So the basis for all this is actually some research that I did a number of years ago, back during the first Trump administration. You may remember at that point Trump came into office, and even before that, he made some threats about what he called terminating NAFTA. And so what I did was, you know, I didn’t know whether to take these threats too seriously or not, but I was very interested in how this would play out. You know, I’ve spent, you know, many years studying the macroeconomic effects of different kinds of trade reforms. But the, you know, these kinds of reforms in the context of the North American economy are, I think, quite special given you know how tightly integrated our supply chains are especially things like in the auto sector, where parts and, you know, vehicles cross the border back and forth many times before actually, ultimately going onwards to consumers. And so I wanted to try to understand, you know, what the impacts of these kinds of things could look like in this particular North America.
RUDYARD GRIFFITHS: Let me jump in there with your first graph, because again, you’ve taken the time to give us some specific metrics here. So the first graph we’re going to show for the audience from your research for the hub today is GDP losses from the initial Trump tariff. So are these Joseph’s what we should expect if we had a 25% tariff across the board on Canadian imports into the United States, and 10% across the board on our energy exports to the United States.
JOSEPH STEINBERG: Yeah, so this, that’s right. So what these results are, are the outcome of running the model I developed several years ago to think about NAF determination feeding into that model. The policy reform that Trump proposed, which, as you said, was to levy 25% tariffs on everything coming into the United States from Canada and Mexico, except for Canadian oil and other energy, which would receive a tariff of 10% this initial scenario, mind you, does not include any the effects of any kind of retaliation by Canada or Mexico. So this is just in isolation thinking about the effects on the three economies of the Trump tariffs themselves.
RUDYARD GRIFFITHS: Great, let’s, let’s look now at what you’ve come up with in terms of that retaliation. So if we add here’s, here’s your numbers. If we add those initial Trump’s tariffs, now we’re adding our retaliation. What I’m seeing here, Joseph, are two things. One, the American numbers, surprisingly not budging as much as maybe I’d hoped or thought, Canadian numbers and Mexican numbers. Wow, really down. And that long run rate for Canada exceeding Mexico. What’s going on?
JOSEPH STEINBERG: Yeah, so, I mean, what’s what’s going on here is, really, you know, Mexico and Canada do both trade a lot with the United States. And obviously, as a, you know, I wrote in my piece, you know, there’s this big asymmetry there, where Mexico and Canada rely a lot more on trade with the United States, both in terms of exports and imports than the United States does with either of those economies. And so it’s important to keep in mind that this retaliate, this retaliatory package that was put out by the prime minister over the weekend, and of course, it has been delayed now. It’s important to keep in mind that this particular package was designed to focus on. On only things, primarily, only on things that were, you know, we can think about as consumer products, what I as an economist would call a final good. The vast majority of the goods that would receive these retaliatory tariffs were not intermediate inputs that are, you know, imported by businesses and used in the process of their production before, ultimately, you know, creating the products that they sell to consumers on, wherever those products might get sold. And so Canada just happens to, you know, rely a little bit more heavily than Mexico on, you know, imported consumer products from, from the United States.
RUDYARD GRIFFITHS: Let’s go on. Joseph now to kind of, to look at your increasingly scary set of numbers here, because now we’re looking at GDP losses with broader retaliation. So now Canada long run rate down 1.62 Americans still not budging. They’re only, I mean, it’s doubled approximately, but they’re only down.
JOSEPH STEINBERG: No, that’s right. I mean, it is. It is worth saying that the you know this broader retaliation does have a bigger effect on the United States, but, you know, doubling from about point two to point 4% GDP losses. But obviously, as you can see from the figure, the impact of that broader retaliation is much more pronounced for Canada and Mexico. And again, the reason there is that broader retaliation, retaliation package that I’ve conceived of here would impose tariffs on imports from the United States, not only on consumer products, final goods, but also on those intermediate inputs that businesses like, you know, car manufacturers and so forth, are using, and that ends up raising the prices of pretty much everything that you know, Canadian consumers buy, not only products that are imported from the United States directly, but also, you know, products that are purchased from, you know, Canadian producers that happen to use imported intermediate inputs from the United States. And so that’s that really is that broader retaliatory package, if it did come in, into play somewhere down the line, would be, you know, particularly harmful for our economy.
RUDYARD GRIFFITHS: And then let’s look at your final graph here that we have from your excellent piece today in the hub. It’s GDP losses with escalation by the United States. So now what I’m seeing is short run the Americans finally getting into some some pain here. We’re kind of getting into muscle tissue now at almost two thirds of a percent of GDP loss in the short run. And interestingly, the Canadian numbers coming down a bit in terms of the extent.
JOSPEH STEINBERG: It’s really important to keep in mind here is these numbers should not be compared to the broader retaliation, the broader retaliation package scenario that I modeled was a hypothetical that’s not something that anybody has, you know, on our side of the border, or the Mexican side, yet has proposed. So the way that you should interpret those numbers are the additional impacts relative to the baseline retaliation scenario, where, again, we put in this, we put into play this package of retaliatory tariffs that focuses on consumer products. And so there you do see, relative to that baseline, there is a little bit of an additional hit on Canadian GDP from the escalation on the part of the United States.
RUDYARD GRIFFITHS: So Joseph, if we’re to kind of sum this all up, what I’m seeing here is something that’s very disproportionate, that regardless of what America does or what what we might do in the coming weeks or months, we’re going to pay a much heavier cost for this and and what I think is especially important from your piece today, it’s about how long this lasts. Because, yeah, as you’ve modeled in your story, you know the initial losses here are equivalent to in a context of the next 12 months, could be half of the 2008, 2009 reset recession, nowhere near as bad as COVID. But the issue that you’ve identified is that if this is the new normal, and these tariffs were to remain in place for multiple years? Well, then we’re looking at something really quite serious.
JOSEPH STEINBERG: Yeah, I think that’s a really important piece of context here. You know, we typically think about a recession as a temporary drop below, kind of the, you know, the baseline, long run trajectory of the economy, a drop that lasts for, you know, something that’s on average, something around eight quarters, two years. It’s temporary. If we were to unfortunately find ourselves in a situation where, you know, 25% tariffs on our products being levied by the United States was the new normal. That is a really serious thing to think about having our economy be permanently, you know, one to one and a half percent below where it ought to be in the absence of those tariffs, is actually far more costly for Canadians, I think, than a temporary drop. You know, even if the magnitude that we saw during COVID, you know, during COVID The first year. The economy contracted by about 5% but it bounced back fairly quickly. Yeah, you know, remaining permanently below our kind of initial trajectory for our economy is really, really costly. That’s unfortunately, a really painful thing to consider.
And I want to just for a little bit more context, I want to emphasize that there is precedent for this, you know, during the first Trump administration, when, when he started the trade war with China, imposed tariffs on, you know, a fit not entirely across the board, on imports from China, but on a fairly broad swath of Chinese products. Those tariffs went into place in late 2018 and initially, my research shows, some of my other research shows that, you know, people really didn’t think that that would last all that long. They thought that there was a very good chance that those initial Trump tariffs on China would end with and within a, you know, a little bit more than a year. Now, in hindsight, that wasn’t true, and we can actually track, using some of my research, is kind of the evolution of the market’s perception of the likelihood of those Trump tariffs on China being revoked. We saw those tariffs remain in place during, you know, the entirety of the Trump administration, the first Trump administration, and as well the entirety of the Biden administration that followed it. And so I think there is a real a real possibility that if we do end up finding ourselves in a trade war with with President Trump, it could be a quite protracted situation. It’s not something that we should necessarily, I think, expect to end quickly. You know, certainly couldn’t.
RUDYARD GRIFFITHS: We have to bring this interview to an end. So we appreciate all this fantastic analysis and insight, this modeling that you’ve done exclusively for The Hub today, on day three of Trump’s tariff war, we appreciate you coming on the program, ladies and gentlemen, that was Joseph Steinberg. He’s an associate professor of economics at the University of Toronto, and you can get the full length edition of his article right now at triple w the hub.ca and just a reminder that The Hub is supporting Canadian businesses. If we all support each other in this moment, we’re going to get through this stronger than ever. So if you are a Canadian business, ie incorporated in Canada with half a dozen or more employees, we have complimentary group subscriptions available for you and your company, the more informed, hopefully we get about these issues from people like Joseph, the better our individual and collective response to this tariff threat will be. You can get your complimentary corporate subscription, group subscription right now at subscription at the hub.ca, email us now. We’ll get you set up. Thanks for watching. Back to you with more videos this special series from The Hub Trumps, trade war.
