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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.
Graphic Truth: Which major economy has the lowest tariffs?
The Biden administration scaled back the EU tariffs but built on the China tariffs with additional measures. The tariffed share of US imports is now the highest it has been in decades, and Trump has threatened to boost tariffs even more.
But he’s starting from what is still, despite all that, a low base. The US has the second-lowest tariff barriers among the G20, the group of the world’s largest economies.In 2023, the trade-weighted average US tariff rate – a measure that takes into account the mix of goods a country actually imports – was just 2.2%. Only Japan’s was lower. Canada’s, by comparison, was 3.4%. The EU’s was 2.7%. And India’s was a whopping 12%. Here’s a look at how all 20 economies stack up when it comes to levies at the border.10 memorable quotes on GZERO World with Ian Bremmer in 2024
On our award-winning weekly global affairs show, GZERO World, Ian Bremmer explains the key global stories of the moment and sits down for in-depth conversations with the newsmakers and thought leaders shaping our world. In no particular order, here’s a look back at the 10 most quotable moments from this year’s episodes.
Adam Grant on how AI is changing the world of work
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The AI revolution is coming… fast. But what does that mean for your job? Watch Ian Bremmer’s conversation with organizational psychologist Adam Grant.Yuval Noah Harari explains why the world isn't fair (but could be)
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Pulitzer-prize-winning author and New York Times columnist Thomas L. Friedman games out a possible resolution to the war in Gaza and explains why both Israeli Prime Minister Netanyahu and Hamas are obstacles to peace. Watch the full episode.
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Don’t miss an episode in 2025!
GZERO World airs nationwide on US public television (check local listings), and new digital episodes of GZERO World are released every Monday on YouTube.
Europe's biggest concerns about Trump's return
Carl Bildt, former prime minister of Sweden and co-chair of the European Council on Foreign Relations, shares his perspective on European politics from Delhi, India.
Is Europe prepared for a Trump presidency?
And that's of course the big issue around every capital of Europe. There are two major issues and concerns.
One of them, obviously, the Russian war against Ukraine. What will be the US policy? Trump has promised to make peace within 24 hours. That's not going to happen. Putin is determined to continue this particular war. What would be the consequences then? Is Trump going to throw Ukraine under the bus, abandon support and thus abandon de facto concerns for the security of Europe? How would Europe react to that big issue?
Second big issue, tariffs. Trump has said that tariffs is the word that he loves most of all words. And he said that he's going to impose 10, 20% tariffs on all imports and far more on imports, of course, from China. That's going to have hugely negative effects for the global economy, also for the European economy, US economy and everyone else. What's going to be the European reaction to that? Counter tariffs or trying to line up with other global trade actors to preserve as much as we can, open up a big global trading system? Huge issues. No answer until by January 20th we know what the Trump administration is going to do. One conclusion, fairly obvious; we better buckle up.
Canada's Minister of Foreign Affairs Melanie Joly speaks during a reception honouring the visit of the Chairperson of the African Union Commission Moussa Faki Mahamat in Gatineau, Quebec, Canada October 26, 2022.
Canadian foreign minister heads to China amid tough tariff talk
Canadian Foreign Affairs Minister Mélanie Joly made a surprise visit to Beijing on Thursday as Canada and the United States are both considering new barriers to trade with China.
Canada-China relations have gone from bad to terrible since 2018, when Canada held Huawei executive Meng Wanzhou for extradition to the United States and the Chinese government responded by detaining Michael Kovrig and Michael Spavor. Wanzhou and the two Michaels were released in 2021, but a Canadian public inquiry into foreign interference continued to put a strain on relations. Then came the suspected Chinese spy balloon surveillance in US and Canadian airspace in 2023.
Still, Chinese Foreign Minister Wang Yi said China was open to improving relations earlier this year.
But this week, Deputy Prime Minister Chrystia Freeland said she would be talking to Canadian business and labor groups about erecting new trade barriers with China. Washington sent a similar message as Joe Biden told allies on Wednesday that he is considering taking fresh action to block Chinese chip manufacturing. Meanwhile, in Milwaukee this week, Donald Trump’s running mate, JD Vance, said China is the “biggest threat” facing the United States.
The Chinese likely want to talk to Joly about avoiding new trade barriers with Canada, since China’s economy is struggling and any new limits on exports could further slow growth. Joly will no doubt listen politely, but Canada is unlikely to jeopardize its crucial trade relationship with the United States by making any side deals with Beijing.
How would the new tariffs on Mexican imports affect the price of avocados?
With the new tariffs on Mexican imports, will I still be able to afford avocado toast?
Answer: It's going to get more expensive. To back up, President Trump announced 5% tariffs on goods imported from Mexico on June the 10th, to go up to 25% tariffs in October — beginning of October. While the President talks about these tariffs, it makes it sound like the Mexican government is going to cut a check to the US government. In fact, what happens is these costs are borne by companies as they import goods into the US, and therefore is borne by, and passed along to, the US consumer. So this can have the impact — and will have the impact — of dampening the economy, and by quite a bit. There's an economic consulting firm in Texas that says the tariff could cost the US more than 400,000 jobs and $40 billion of GDP. So it's going to hurt the cost of your avocado, as well as everything else that comes from Mexico, and will hurt the economy as well, which is why you're seeing some stock market volatility right now.
It's Pride Month! How can we use our dollars to celebrate?
Answer, of course, is by spending those dollars or investing those dollars with LGBTQIA-owned companies. As well as in the workplace, hiring, promoting, mentoring, giving references to LGBTQIA individuals, and really building an inclusive environment. Because the research tells us that when people feel like they belong at a company, they are three and a half times more likely to fully contribute.