Why Is Trump Starting a Trade War with Canada?

• President Trump imposes 25% tariffs on Mexico and Canada, sparking fears of a trade war and economic instability
• The tariffs target the U.S.’s largest import partners, potentially hurting both domestic and international markets
• Investors brace for short-term volatility as Trump’s protectionist policies aim to reduce trade deficits and boost domestic industries

Although it’s undeniable that Donald J. Trump has a peculiar personality, many anticipated that in his second tenure as U.S. President, the more seasoned politician would adopt a more sensible approach to potential diplomatic issues. 

The latter couldn’t be farther from the truth, however. In his first week in office, Trump decided to change the name of the Gulf of Mexico to “Gulf of America”, left the Paris Climate Accord, and now started a trade war with the two nations neighboring the U.S.: Mexico and Canada. 

Taking effect this Monday, February 3rd—the new rule imposing 25% tariffs on imported goods from Mexico and Canada has drawn significant backlash. While a pushover over Mexico was kind of expected, the fact that the U.S. Government is preemptively starting a trade war with one of its longest allies draws more attention. 

The Government explained that the tariffs on Canadian products were made in retaliation for illegal immigration and over-border fentanyl trafficking. However, Canada accounts for less than 1% of illegal immigrants, and fentanyl crossing the U.S. border. 

Trump Claims Canada-U.S. Debt as a Reason for Tariffs

In a post on his Truth.Social account, Donald Trump cited the debt between Canada and the U.S. as part of the reason for the tariffs. 

“The USA has major deficits with Canada, Mexico, and China (and almost all countries!), owes 36 Trillion Dollars, and we’re not going to be the ‘Stupid Country’ any longer” — Trump wrote in a now-deleted post. 

By 2023, Canada’s trade deficit relative to the U.S. trade stood at around $67 billion. This means that Canada spends more buying products from America than selling. That implies that the nation would be in a worse position in a potential trade war against Trump. 

Tariffs Target Largest Imports Partners

Targeting China, Mexico, and Canada means that these new tariffs also target the U.S.'s largest import partners. China ranks at the top of the ranking with $536.3 billion in goods sales to America, followed by Mexico $454.8 billion), and Canada ($436.6 billion). To put it in context, the entire European Union sells around $553.3 billion.

This data puts weight to the argument that the potential trade war will hurt the American economy as well, halting the Federal Reserve’s recent moves to lower interest rates. In fact, Donald Trump himself acknowledged that in a post on social media.

“We may have short-term some little pain, and people understand that,” Trump said. “But long term, the United States has been ripped off by virtually every country in the world.”

Investors can expect volatile times now as the U.S. enters a delicate trade war with its largest international trade partners. Ultimately, this protectionism may benefit the American economy in the long run, by protecting domestic industries, creating more jobs, encouraging American product consumption, and reducing trade deficits. But in all likelihood, we can expect shaky times in the short-term future. 

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