Economist Justin Wolfers said Canada’s retaliatory tariffs carry limited short-term economic weight but could inflict political pain on President Donald Trump because Ottawa targeted products concentrated in politically sensitive states.
‘The Economic Stakes Are Relatively Low’
Speaking to Andrew Neil on ‘The Times at One’ podcast released on Tuesday, Wolfers said Trump’s tariffs on Canadian goods, worth roughly $20 billion, amount to only about 4% of Canadian exports, calling the immediate economic impact “just not that big.”
Canada then matched the move “dollar for dollar” in its own retaliatory tariffs.
He added that Canada was strategic in choosing which products to hit, pointing to machinery, aluminum, and dairy as goods that “largely affected a small number of states,” specifically Midwestern states near the Canadian border that are “extremely sensitive” politically.
“What they’ve managed to do is raise the political stakes for the president,” Wolfers said, “even though the economic stakes are relatively low.”
Canada’s Retaliatory Tariffs
Canada’s tariffs, ranging from 15% to 50%, took effect after midnight on Tuesday on a wide range of U.S. goods, as part of Ottawa’s pledge to match U.S. tariffs after trade talks collapsed and Trump imposed 50% duties.
Last month, investor Peter Schiff said Canadian Prime Minister Mark Carney‘s retaliatory tariffs “may be good politics” but are “bad economics” for Canada, since two wrongs don’t make a right.
A Playbook From the China Trade War
Wolfers cited the U.S.-China standoff last year as a cautionary precedent.
That dispute escalated sharply, with Washington and Beijing trading retaliatory tariffs until the rate hit 145%, effectively halting most trade between the two countries, before both sides pulled back and negotiated a de-escalation.
He added that Carney could similarly try to “run out the clock,” slowing the pace of retaliation to avoid a similar spiral while waiting for the political dynamics to shift.
Tensions Have Spilled Beyond Tariffs
On Monday, Trump called the U.S.-Canada currency exchange rate “unacceptable” and threatened to block Bombardier Inc. (OTC:BDRBF) jets from the U.S. market entirely.
Trump has also warned that Canadian politicians treating him as “the enemy” could trigger a “very bad” economic and political fallout for Canada, even as Carney has said a mutually beneficial deal remains possible.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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