Could the US Drop Canada as a Trade Partner? Trump Threatens FREE Trade

Donald Trump is prepared to drop Canada as a trade partner based on his recent comments in Davos at the World Economic Forum. “We don’t need them to make our cars, and they make a lot of them. We don’t need their lumber because we have our own forests,” he continued. “We don’t need their oil and gas, we have more than anybody.”

The numbers tell a different story, with $3.6 billion worth of goods crossing the US-Canada border daily. The Canadian Chamber of Commerce said that the trade route accounts for 3.7 million jobs for Canadians and Americans. Trump may have lifted Biden-era restrictions on oil and gas, but the adjustment will not be automatic. America DOES depend on Canada for energy. In 2023, 60% of all crude imports to the US came from Canada. More significant, Canada provided 99% of America’s natural gas that same year.

Look what happened when tariffs on Canadian lumber were raised this past August from 8.05% to 14.54%. Looking a few years back to the COVID era, lumber prices in the US were astronomical when Canada’s supply chain came to a standstill. That spilled into real estate and construction. Absolutely irresponsible to put a tariff on lumber amid this housing crisis. Some Canadian companies like Canfor and West Fraser moved to the US to avoid duties but most are simply raising prices.

The US-Mexico-Canada Agreement that Trump initially signed to replace NAFTA will come to an end. “Upon taking office, I will formally notify Mexico and Canada of my intention to invoke the six-year renegotiation provision of the USMCA that I put in,” Trump said last week during a speech at the Detroit Economic Club. His main reasoning is to strengthen American auto manufacturing. The current rules state that 75% of a vehicle must be manufactured in one of the three nations, up from the previous requirement of 62.5%. This was bipartisan as Kamala Harris also voiced support for reforming USMCA and did not vote for the initial proposal. Auto sales are already significantly down and the industry cannot afford another blow.

The troubling matter here is that the 25% tariff on Mexican and Canadian goods was initially intended as a threat to curb migration and drug flow from the northern and southern border. Now, Trump is stating that he wants Canada to become a US state. The comments were initially made in jest, but now Trump is taking an isolationist approach and believes absolutely everything should be made in America. “My message to  every business in the world is very simple: Come make your product in America, and we will give you among the lowest taxes of any nation on earth,” Trump said at Davos. “But if you don’t make your product in America, which is your prerogative, then very simply you will have to pay a tariff. Differing amounts, but a tariff.”

Trump is also threatening to up tariffs on China to 60% and he told the European Union that they will also be subjected to a tax on trade. I support many of his measures but this is absolute insanity and will cripple the American economy. We cannot take a North Korean “juche” approach to trade where we only rely on ourselves.

No one will want to invest in America under these conditions. Big businesses will not move to America if they can only sell to Americans. He is basically redirecting trade to China at this point as its middle class is continuing to grow and businesses are now lining up to offload goods to the Chinese. There is a reason Chinese President Xi did not bother attending Davos.

Protectionist policies lead to economic instability. Tariffs hurt consumers rather than individual governments. Free trade must remain FREE and permitted to operate with minimal government interference. My entire premise of the Economic Confidence Model shows how deeply interwoven individual economies are, with capital flows and market trends all influencing one another across borders. Whoever is advising Trump is either attempting to sabotage him or they fail to comprehend that the economy must be viewed from a GLOBAL standpoint.