What if?

Ryan has a cool guitar collection, a fine house and a trophy wife (and kids). But he’s wrong about tariffs. Sort of.

Yes, my colleague wrote here yesterday that if you-know-who slaps a 25% tax on all our stuff heading south it will hurt the economy and raise inflation on both sides of the border. All true. But Ryan also said he thinks the Orange Guy is bluffing, or at least blustering. Duties like that would simply be too extreme.

Well, guess what? They’re coming.

T2’s pilgrimage to Mar-a-Lago Friday night was the right thing to do, but destined to fail. Word now from the Lib delegation (as ‘leaked’ to CTV) is the Trump will use tariff duties to balance his budget (that will take a year or two), then maybe carve out nation-by-nation exemptions.

As our fav cowboy economist, Derek Holt, puts it: saying Canada has open borders or is a mecca for drug dealers, “is a ruse. It masks the real objective and is in Canada’s case not supported by the evidence.”

Of course not. Fentanyl seizures at the 49th parallel amounted to a paltry 0.08% of the stuff going into the US last year. And the 13,000 people detailed by US border authorities who came in from the north compared with 2,500,000 arrested after leaving from Mexico.

It’s fabricated. It’s a lie. Mostly, it’s an excuse so Trump can impose these trade barriers, escaping trade agreements under Section 232 of the Trade Expansion Act of 1962 allowing tariffs if there is a national security threat. Wham. Slam. Get ‘er done on Day One. Make his base think it was all about animal aliens and saving the children from druggies.

Explains Holt: “Trump thinks tariffs a) are good because they substitute purchases from US companies from foreign firms and encourage domestic investment, and b) because they can fund other tax cuts. Both views are almost entirely without merit.” And now we can add (according to Trudeau’s staff), getting Canadians and Mexicans to help balance Washington’s bloated budget.

But enough about the Emperor and his motives.

If these tariffs are hurtling towards us next month, what might we expect the outcome to be?

The answer lies in how we respond. Does Canada do nothing, keep negotiating, dosing up on hopium and praying the American president gives us a break? Or do we put on our protective snowmobile pants, goalie pads, hardened toques and sawed-off hockey sticks and go to war? What happens if we slap reciprocal duties on all the US stuff we buy?

The economists have been modelling this. NOTE: Do not read further without sitting down and (hopefully) having a comfort dog nearby. Whether we fight or now, says Holt, “the result would be a swift and severe recession on America’s northern doorstep that would crush demand for US imports.”

If we do nothing and wait for the tariffs to end (maybe in 2027): The economy would contract by 3.8% (says a research paper from Scotia Economics). How much is that? Well, the pandemic shaved 1.3% off the economy in 2020 and again in 2021. This would be way worse. Moreover the unemployment would jump by a third, core inflation would decline and the Bank of Canada would have to slash rates to almost 1%. Mortgage costs would tumble and the dollar could move towards 57 cents US. The housing market would likely freeze given the economic damage and job loss.

And if we retaliate, the way Ottawa did (on a limited basis) when the Emperor imposed modest anti-Canuck duties in 2018?

Economists Jean-François Perrault, René Lalonde, and Farah Omran figure the GDP would crash more than 5%, the Bank of Canada would have to raise its rate by a whopping 2.75%, the dollar would crumble 21%, inflation would soar by more than 4% and unemployment would double.

No crap. That’s the model. We surrender, we lose. We fight, we really lose.

In the States, tariffs would raise importer and consumer prices, rekindle inflation and halt CB rate cuts. If might spike the cost of living dramatically in early months, counter to Trump’s promise of bringing prices down. But if he goes ahead with widespread tax cuts (crushing the corporate rate while eliminating all tax on tips, retirement incomes and overtime – as he vowed), the public may buy it. In any case, Trump is in his second term. He won’t be facing re-election. He may care more about a long-term legacy (budget balancing, tax slashing, deregulation, anti-wokeness, strong dollar, America first, end wars) than the cost of paper towels.

Well, let’s hope Ryan’s right. That the US leader caves, turning out to be reasonable, reliable, empathetic and a good egg.

Sure thing.

About the picture: “Here is a picture of my BFF Capone who sadly passed away last week,” writes Matthew. “Despite losing an eye at age 5 and being paralyzed despite spinal cord surgery 18 months ago, he was never without a smile. He was always living his best life. His determination and positive attitude will be an inspiration for me forever.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2024/12/01/what-if-3/