Donald Trump has imposed a 25% tariff on virtually all goods produced by two of America's biggest trading partners, Canada and Mexico. He also established a full 20% tariff on Chinese goods.
As a result, the average tariff level in the United States is higher than any time since the 1940s.
Meanwhile, China and Canada quickly opposed Trump's obligations, with the former imposing a 15% tariff on American produce, and the latter giving a 25% tariff on $30 billion in US goods. Mexico vowed to carry its own retaliatory tariffs.
This trade war could have widespread consequences. Trump's tariffs have already caused stock market sales and cooling manufacturing activities. Economists estimate that trade policies will cost more than $1,200 a year for a typical US household as prices for countless products rise.
All of this raises the question: why did the US president choose to overturn trade relations in the North American continent? The interest in this question is high as it allows you to determine how effective Trump's massive tariffs are. Unfortunately, the president himself does not seem to know the answer.
Over the past few weeks, Trump has provided four different and contradictory justifications for his tariffs in Mexico and Canada, none of which makes much sense.
1) Trump's tariffs in Canada and Mexico aim to secure US borders
Officially, North American tariffs are intended to combat the “war on drugs” rather than the trade war. Trump argues that our neighbors to the north and south are causing the relocation of fentanyl and undocumented immigrants to the United States, which constitutes a “national emergency.” By imposing sudden tariffs on Canada and Mexico, Trump is on the surface trying to force two countries to block the flow of drugs and immigration.
However, this policy is irrational. Canada plays virtually no role in fentanyl trafficking. And the Mexican government is already stepping up enforcement against drug cartels (often through brutal means) while blocking immigrants from entering the United States. These efforts seem to have slowed the import of fentanyl significantly. They have not managed to shut down the fentanyl trade completely. But that is not a reasonable requirement. If the US cannot stop drugs from penetrating its own prisons, how can the Mexican government closely monitor the entire country to prevent extremely lightweight drugs from crossing the northern border?
Nevertheless, if Trump's tariffs were intended solely as a diplomatic tool to influence border policies in Mexico and Canada, they could be lifted in a short period of time. Canada and Mexico were able to present plans to crack down on drugs and immigration, and Trump was able to declare victory last month, as it appeared to have delayed these tariffs in response to Mexico and Canada's concessions.
But these tariffs, at least according to the president, aren't just about winning the drug war.
2) Unless tariffs are actually intended to transfer production to businesses to the US, thereby closing the trade deficit.
On Tuesday morning, the president said, “If businesses move to the US, there will be no tariffs!!!”
Here, Trump suggests that his tariffs are not temporary equipment for combating the imports of Phantanil, but rather as a durable means for businesses to move factories to the United States. After all, if tariffs are temporary, companies will have little reason to change their investment decisions.
And Trump's comments matched his previous commentary on the issue on Tuesday. Last month, Trump told his social media followers: why? There's no reason. You don't need anything they have. We have unlimited energy. You should have more wood than you can build your own car and use. ”
He added, “The US has a huge deficit in Canada, Mexico and China (and almost every country!) and owes $36 trillion. We will no longer be “silly countries.” When you make products in the US, there are no customs duties! ”
These statements mean that the United States should maintain a permanently sustained tariff in Canada and Mexico, as it has little need for products, and is currently “subsidizing” those countries by carrying out trade deficits.
But this is a terrible justification for Trump's policy on several levels. For one, the presidential tariffs on Canada and Mexico will be applied. all Products – Includes agricultural products that the United States cannot produce on a large scale, such as papaya and other tropical fruits.
Trump's obligations also increase the cost of foreign-made parts to American manufacturers, thereby hindering them to find US factories. According to one estimate, Trump's tariffs in Canada and Mexico would increase annual costs for the US automotive industry by $60 billion. This forces US auto companies to raise prices, thereby damaging their competitiveness in foreign markets. Meanwhile, overseas auto companies will be able to purchase Mexican and Canadian parts at lower rates.
This fundamental dynamic – tariffs increase production costs for US companies – led Trump's past tariffs to backfire during his first period: Trump's tariffs, according to a 2019 Federal Reserve analysis, Reduction Manufacturing employment in affected industries.
Separately, the idea that operating a trade deficit with a country is equivalent to “subsidizing” is that it reflects a serious misconception in economics. You buy more items than you would buy from a grocery store. In that sense, you run a “trade deficit” with grocery stores. But when you hand over currency in exchange for a shopping cart full of food, you've not just made a charitable donation to stop by and shop.
3) Trump's tariffs are not intended to allow Canada and Mexico to conservatively modify the terms of trade with U.s
On Tuesday morning, Trump suggested that his real complaint with Canada was that it was violating unfair trade practices against the United States. “Canada doesn't allow American banks to operate in Canada, but their banks are flooded with the American market,” Trump writes about the true society. “Yeah, that seems fair to me, right?”
This is not a good legitimacy for Trump's tariffs, for several reasons. North American trade is currently in compliance with the US-Mexico-Canada Agreement. This is a trade agreement that Trump himself brokered. The US has the opportunity to renegotiate that deal in 2026. It calls for the efforts to improve the terms of North American trade through an orderly legal process, not a trade war that impoverishes all three countries.
But more essentially, Trump's claim that Canada is banning American banks from doing business within their borders is simply wrong. In fact, US banks have been operating in Canada for over a century.
4) Trump's tariffs are intended to force Canada to become the 51st state
Last month, Trump posted on social media. “Canada should be our precious 51st state. Much lower taxes, and much better military protection for Canadian people – and no tariffs!”
When Trump talks about his 25% tariffs on the country, he repeatedly mentions his desire to annexate into Canada. And Canadian Prime Minister Justin Trudeau says he believes Trump is very serious about “absorbing our country.” After a meeting with Trudeau, leader of the Alberta Labour Federation, Gil McGowan said in X, “What Trudeau really wants isn't action against fentanyl or immigration or even trade deficits, what he really wants is to dominate Canada or take it entirely.”
Integrating a country so you can conquer it is not a morally legitimate goal of trade policy. Also, it's unlikely to work. Canadians are overwhelmingly opposed to joining the US. And they rarely get warmed by the concept after seeing the US government intentionally inflict economic pain on them.
5) Unless Trump's tariffs are intended to raise revenues
Finally, the Trump administration has repeatedly suggested that it views high tariffs as a way to raise revenue, allowing the US to cut income tax rates. Tariffs are effectively sales taxes on foreign goods paid by importing companies, usually passing costs to consumers. Trump raised the idea of completely replacing income taxes with tariffs and proposed the creation of an “external revenue service” to collect obligations.
Temporary tariffs cannot offset permanent tax cuts. So, if Trump's goal on North American tariffs is to generate income, they may stay for a while.
But this is not a good idea. It is very regressive to replace income taxes with tariffs, as working-class households devote most of their income to imports rather than wealthy ones. More essentially, using tariffs as a revenue stream is incompatible with all of Trump's other trade targets.
If the president wants to use these duties as a tool to force Canada and Mexico to increase border security, or to open up the protective sector of the economy, then they should be willing to lift tariffs if those countries follow his wishes. In that case, tariffs will not generate long-term income.
If Trump actually wants to remake the American economy – as businesses move all their factories to the US – tariffs reduce their income over time as American consumers make foreign goods less and less.
And if Trump's true purpose is to force Canada to join the US, all tariffs on Canadian goods will be lifted upon entry into the union.
All this makes it very difficult to say exactly why Trump blasted trade ties with the two closest allies in America. What is clear is that the president's reasoning is deeply confused. Simply put, Trump has decided to impoverish the people of the United States, Canada and Mexico without a valid reason.
