In this episode of Trump’s Trade War, The Hub’s publisher Rudyard Griffiths speaks with Joseph Steinberg, associate professor of economics at the University of Toronto.
Key points:
- Asymmetry in economic impact: U.S. tariffs disproportionately harm Canada due to its heavy reliance on trade with the U.S., with the impact on Canada being five times greater than on the U.S. While the U.S. economy is already feeling the effects of higher prices for steel, aluminum, and other commodities, Canada is far more reliant on trade with the U.S. than vice versa. Broad-based retaliatory tariffs by Canada would harm Canadian consumers and producers more than they would hurt the U.S. economy.
- Targeted retaliatory measures: Canada should focus on targeted measures to create diplomatic leverage without widespread economic harm. Restricting exports of key resources like potash, which is critical for U.S. agriculture, could put pressure on specific sectors of the U.S. economy without causing widespread harm to Canadian consumers.
- Tariffs as an inefficient tax: U.S. tariffs in theory could function as a form of consumption tax, similar to a value-added tax (VAT). However, Steinberg argued that tariffs are an inefficient way to raise revenue because they only apply to a subset of goods, leading consumers to substitute away from taxed products.
As the Trump administration’s trade war with Canada enters its 32nd day, the economic and political stakes continue to rise. In a recent episode of Trump’s Trade War, hosted by Rudyard Griffiths, publisher of The Hub, Joseph Steinberg, associate professor of economics at the University of Toronto, provided a detailed analysis of Canada’s options and the potential economic fallout from the ongoing trade dispute. Steinberg highlighted the challenges Canada faces in responding to U.S. tariffs, the asymmetry in economic impact between the two countries, and the potential for targeted retaliatory measures to create diplomatic leverage.
Steinberg’s analysis underscored the challenges Canada faces in responding to the Trump administration’s aggressive trade policies. While the U.S. economy is already experiencing the negative effects of tariffs, including rising prices and stock market volatility, Canada’s economy is far more vulnerable due to its heavy reliance on trade with the U.S. “Broad based retaliatory tariffs are going to have a disproportionate impact on Canadians versus Americans,” Steinberg warned, making them a less effective tool for creating economic leverage.
Instead, Steinberg advocated for a more strategic approach, focusing on targeted measures that could pressure specific sectors of the U.S. economy. For example, restricting exports of potash, a key input for U.S. agriculture, could create significant economic pain for American farmers without causing widespread harm to Canadian consumers. However, Steinberg acknowledged that even targeted measures would require careful implementation to avoid unintended consequences for Canadian producers.
Steinberg also addressed the broader implications of the Trump administration’s tariff policies, particularly the idea that tariffs could serve as a form of consumption tax. While tariffs do generate revenue for the U.S. government, Steinberg argued that they are an inefficient way to raise funds because they only apply to a subset of goods. As a result, consumers are likely to shift their spending away from taxed products, reducing the potential revenue gains. “Tariffs are not an effective way to raise sales tax revenue,” Steinberg said.
Steinberg’s analysis highlighted the complexity of the trade war and the difficult choices facing Canadian policymakers. While retaliatory tariffs may be necessary to signal Canada’s resolve, they come with significant economic costs.
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