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President Donald Trump makes a special address remotely during the 55th annual World Economic Forum meeting in Davos, Switzerland, on Jan. 23, 2025.
The Big Tar-iffs: Will he or won’t he start a trade war?
The big Trump tar-“iff” now has a when: Feb. 1.
That’s when the busy new US president has promised to slap 25% tariffs on both Canada and Mexico. In his virtual address to the folks attending the World Economic Forum in Davos, Switzerland, on Thursday, President Donald Trump again singled out Canada for harsh treatment. “We have a tremendous deficit with Canada,” he said, reiterating his usual inaccurate tariff mantra. Trump claims the trade deficit is between US$200 and US$250 billion a year when it is significantly less than half of that, mainly due to energy exports.
Trump then followed up with his favorite new expansionist taunt. “You can always become a state,” he said to Canadians. “If you’re a state, we won’t have a deficit. We won’t have to tariff you.”
But what he said next was more dire because it was aimed directly at the industries that are core to the Canadian economy. “We don’t need them to make our cars,” President Trump said. “We don’t need their lumber, because we have our own forests. We don’t need their oil and gas. We have more than anybody.” In other words, we don’t need Canada at all.
Cue the economic peril clutching.
Let’s slow-walk through all this.
Will President Donald Trump really follow through with tariffs, or is it a negotiating tactic?
Yes, tariffs are coming the way cold comes in winter. Why so certain? Our general rule is to take the president of the United States both seriously and literally. As Trump said in his inaugural address, tariffs are now his primary source of government revenue, not just a tool for negotiation.
“Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens,” he announced. “It will be massive amounts of money pouring into our treasury coming from foreign sources.” He even floated the idea of an “External Revenue Service,” so tariffs are the flywheel in the engine that Trump promises will drive a golden age.
In his Davos speech on Thursday, the president emphasized the warning. “If you don’t make your product in America,” he said to a large group of CEOs, “then, very simply, you will have to pay a tariff, differing amounts, but a tariff which will direct hundreds of billions of dollars, even trillions of dollars, into our treasury to strengthen our economy and pay down debt.”
Is he right that high tariffs will really work for the US?
Not as promised. This is where the Trump math breaks down and politics and economics collide. Trump’s tariff threats will drive some businesses to keep factories in the US instead of, say, Canada. For example, this week Stellantis announced it was going to build the new Dodge Durango in Detroit and not move it to Canada as initially thought. It will also reopen a previously closed plant in Illinois to build another vehicle. So, expect some short-term “wins” from the America-first, protectionist agenda.
After all, in his first term, Trump used tariffs on goods like steel, aluminum, and products from China to more than double the amount the government collected from duties to about $111 billion.
Sounds like a lot, but it’s not. In 2023, the US government took in over $4.2 trillion in income and payroll tax. Even with 10% tariffs on all goods from China and 25% tariffs on Canadian and Mexican goods, the US government would take in only another $140 billion in 2025, according to the Committee for a Responsible Budget.
That’s not nearly enough to finance new tax cuts. For example, Trump has promised to extend his 2017 tax cuts in 2026. The Congressional Budget Office estimates doing so will cost about $4.7 trillion in lost revenue between now and 2035. That leaves a Grand Canyon-size hole that revenue from tariffs and savings from government cuts can never fill. Deficits will explode.
So will tariffs really be 25% across the board on Canada and Mexico, or will President Trump come down to a more manageable level on a few select goods?
That remains very unclear. The president didn’t slap these tariffs on week one, revealing they may have dropped as a symbolic priority for him. That opens up some room to maneuver to negotiate until the Feb. 1 deadline, and now there is even further hope for exceptions. The president has also asked for a report on trade and unfair practices to be delivered to him by April 1, which offers yet another potential delay in the tariff war. There will be lobbying, networking, and a full-bore strategy to give Canada some kind of carveout.
Still, neither date removes the possibility of the promised tariffs happening at some level. The president needs revenue, and tariffs are his preferred tool, despite the math.
Will Canada retaliate dollar for dollar?
Yes. The same strategy Canada deployed in Trump 1.0 during the steel and aluminum tariffs will be deployed again, and the list amounting to CA$37 billion worth of goods — including things like Florida Orange juice — is already made and ready to be deployed. After all, if Trump goes through with the tariffs, Canada could get pushed into a recession, with up to 5% of its GDP hit. While goods and services in both countries will get more expensive for citizens, it will hurt Canada much more for one reason: Canada sends almost three-quarters of its exports to the US, compared to just a little more than 17% of US exports crossing the other way.
If there are 25% tariffs across the board, will Canada use the nuclear option and try to cut off energy exports to the US, risking a full national unity crisis?
Very unclear. All the premiers and territory leaders met this week with Justin Trudeau to align their retaliation strategy, which includes energy … except for Alberta Premier Danielle Smith, for whom any inclusion of fossil fuel exports in a trade war is strictly off-limits. This is the lifeblood of the Alberta economy, after all, and she is protective of her province. However, her position deeply hampers a united Canadian response and allows the new US administration to deploy a divide-and-conquer strategy, knowing they can absorb any trade shocks better than Canada, especially if they do not include energy.
Is Trump still serious about taking over Canada by economic force?
Unclear. That view has certainly created a surge of patriotism in Canada and escalated tough trade talk as politicians jockey to wear the “Captain Canada” label. But if there is a desire to have an integrated North American economy — newsflash! — we already have one.
Energy alone is the best example. The US imports 24% of its crude oil from Canada, and that is very hard to replace because US refineries are retooled to process Canadian heavy crude oil, not the kind of oil the US extracts from fracking. Not only that, when looking at all energy products that flow across the border, like natural gas, there is a combined network of pipelines in North America that is over 281,000 miles long! With the free trade agreement, integrated fossil fuel pipelines, and hydroelectric systems in the East supplying electricity to the Northeastern states, it would be hard to find two more interconnected economies anywhere in the world.
In other words, on Feb. 1, the US and Canada are headed for a trade war they don’t need over a prize they both already have.
President Donald Trump signs executive orders in the White House.
Trump uses uncertainty on tariffs for leverage
In November, Trump said he would impose those tariffs on Day One, which was Jan. 20, but the document he was signing when he made his remarks calls for a comprehensive report on trade to be delivered to him by April 1, setting out his options.
That process will allow American trade and national security officials to have input “in a formal way, rather than the kind of monarchical court that was going on at Mar-a-Lago,” says Eurasia Group analyst Graeme Thompson.
That means that Canada and Mexico will likely have the opportunity to make their case for continued trade before Trump acts, but he is going to be pushing hard for concessions.
The fresh tariff threats should be thought of as “a negotiating tactic,” says Thompson, but that doesn’t mean there won’t be tariffs. “The bottom line is, whether they come today, tomorrow, next week, or next month, Canada is going to have to live with the specter of US tariffs hanging over its head on any issue at any time for the next four years.”
Trump will reportedly use the threats to force Canada and Mexico to renegotiate the USMCA in an attempt to shift auto manufacturing from those countries to the United States.
Canada and Mexico can both be expected to push back hard to protect jobs in their countries but may be forced to make difficult tradeoffs to avoid broader tariff pain.
Navigating global trade during uncertain times
In a rapidly shifting geopolitical landscape, businesses are focusing on adapting to global trade uncertainties. Dr. Nikolaus Lang, global leader of the BCG Henderson Institute, shared his insights with GZERO’s Tony Maciulis during the World Economic Forum in Davos. Dr. Lang discussed the Trump administration’s cautious approach to tariffs, emphasizing the likelihood of increases in the near future. "Our point of view is that there will be tariff hikes in one way or the others. Whether this will be the magnitude that was kind of mentioned in the campaign remains open."
While the delay may provide corporations some time to prepare, he stressed the urgency for businesses to strengthen their "geopolitical muscle" by diversifying supply chains, planning for inflationary volatility, and integrating geopolitical awareness into decision-making. Despite the complexities, Dr. Lang remains optimistic about global trade growth, forecasting a 3% annual increase over the next decade. Emerging markets, particularly Southeast Asia and India, are poised to benefit significantly, offering substantial expansion opportunities. His insights underscore the need for businesses to remain agile and proactive, finding opportunities even amid disruption.
Follow GZERO coverage of Davos here: https://www.gzeromedia.com/global-stage
President Donald Trump talks with Canada's Prime Minister Justin Trudeau during a North Atlantic Treaty Organization Plenary Session at the NATO summit back in 2019.
Mexico and Canada mull trade maneuvers as Trump proposes “External Revenue Service”
Incoming US President Donald Trumpposted on Tuesday that he will create an “External Revenue Service” to oversee his planned trade tariffs, underlining his commitment to these policies – much to the chagrin of America’s neighbors.
“We will begin charging those that make money off of us with Trade, and they will start paying, FINALLY, their fair share,” wrote Trump.
The news came a day after Mexican President Claudia Sheinbaumlaid out a plan to decrease Mexico’s trade deficit with China in what was widely seen as an olive branch to Trump.
By aligning more closely with Trump against China, Sheinbaum hopes she can carve out a special exception for Mexico, and a stronger hand in renegotiations of the US-Mexico-Canada trade agreement. Her administration has already cracked down on the import of counterfeit goods from Asia and placed tariffs on Chinese e-commerce platforms Shein and Temu. She also plans to cut down on reliance on imports for textile and auto manufacturers based in Mexico — but whether that will spare her the wrath of the ERS is yet to be seen.
North of the border, meanwhile, outgoing PM Justin Trudeau is also working on a plan to defend Canada’s trade interests with the US. He will hold a cabinet retreat next week to hammer out a potential response to Trump’s tariffs.Friedrich Merz
Talk vs. tariffs: Two strategies to tackle Donald Trump
As US President-elect Donald Trump prepares to return to the White House, leaders in the world’s two largest trading blocs — China and the EU — are revealing their starkly different strategies for dealing with his “America First” trade policies.
In Europe, Friedrich Merz, the German opposition leader and leading contender for chancellor in next month’s national elections, is advocating for the negotiation ofan EU–US free trade agreement. Instead of retaliatory tariffs, Merz argues the EU should reignite its competitiveness, starting with lower taxes, and then tell the Americans: “Yes, we are prepared to face this competition with you, too.”
“This competition,” of course, includes China, which is taking a polar opposite approach anddoubling down on its trade war with the US. This week, Beijing added 28 American defense-related companies, including Raytheon, Boeing Defense, and Lockheed Martin, to its export control list, effectively banning exports of dual-use items. The move coincides with a ban on rare earth minerals to the US to “safeguard national security and interests.”
What both Bonn and Beijing agree on, however, is the need to act before Trump takes office — and in Merz’s case, before he does as well. We’ll be watching for the follow-through — and whether talk or tariffs proves the more successful strategy.
Santa's elves bet on Trump tariffs
Sorry elves, not even the North Pole will be spared by America’s trade war. #PUPPETREGIME
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Can Trump's tariff plan boost the US economy?
President-elect Donald Trump has made no secret of his love of tariffs, vowing steep import taxes on China, Mexico, Canada, and almost every product that crosses the US border on his first day in office. Will they boost US jobs and manufacturing, as Trump promises, or lead to rising inflation, as many economists warn? On GZERO World, Oren Cass, founder and chief economist at conservative think tank American Compass, joins Ian Bremmer for an in-depth discussion about Trump’s tariff plan and the future of US-China trade policy. Cass believes that tariffs are a way to level the playing field with China, which he says “flouts international rules and any concept of a free market.” He says tariffs can help correct global trade imbalances and doesn’t believe they’ll lead to a dramatic spike in consumer prices.
“When you raise money through a tariff, you don’t set that money on fire. It’s also tax revenue,” Cass explains, “We have a $2 trillion deficit. If I told you that there was some other tax that was going to help reduce the deficit, you’d probably say that would help reign inflation in.”
Watch full episode: The case for Trump's tariffs
GZERO World with Ian Bremmer, the award-winning weekly global affairs series, airs nationwide on US public television stations (check local listings).
New digital episodes of GZERO World are released every Monday on YouTube. Don't miss an episode: subscribe to GZERO's YouTube channel and turn on notifications (🔔).
The case for Trump's tariffs
What will President-Elect Donald Trump’s election win mean for the US economy? After years of inflation and stagnating wage growth, millions of voters elected Trump off the back of his promise to usher in a “golden age of America.” Trump has vowed to raise tariffs, slash business regulation, and deport millions of undocumented immigrants, policies he says will put Americans first. But what will that mean practically for workers and consumers? On GZERO World, Ian Bremmer is joined by Oren Cass, the founder and chief economist of the conservative think tank American Compass, who thinks Trump’s tariff plan will be a step in the right direction. Many economists argue that Trump's tariff plans will raise consumer prices and spark a global trade war, but Cass argues they're a necessary correction that will incentivize domestic manufacturing, reduce the deficit, and counter China’s unfair trade practices.
“If you actually believe that making things in America matters, then we are going to have to find a way to put a thumb on the scale for getting more of that investment back here,” Cass explains, “And I think that's what a tariff can help do.”
GZERO World with Ian Bremmer, the award-winning weekly global affairs series, airs nationwide on US public television stations (check local listings).
New digital episodes of GZERO World are released every Monday on YouTube. Don't miss an episode: subscribe to GZERO's YouTube channel and turn on notifications (🔔).