Over the weekend, President Donald Trump dragged the United States into an “absurd” new war that he’s already lost, even if he refuses to admit it. This is according to Nobel Prize-winning economist Paul Krugman, who explained on Monday why Trump’s new “dominance display” has already failed.
As Krugman writes, “Two years ago the idea of a trade war between Canada and the United States would have seemed absurd. Canada was our closest ally, a nation whose soldiers have fought and died alongside Americans in many wars, up to and including Afghanistan. Most of us speak more or less the same language. And we’ve had free trade agreements with Canada since 1988, with the most recent version signed by none other than Donald Trump.” But immediately upon reentering office, Trump imposed steep tariffs against Canada under a “nonsensical” economic rationale, which immediately backfired as the country retaliated by banning American alcohol and other goods.
“Yet a bully refuses to learn that his actions are counterproductive and instead doubles down,” says Krugman. “So Trump persisted, most recently by imposing steep new tariffs on Canadian exports, invoking a never-before-used section of the 1930 Smoot-Hawley tariff act as legal justification. In an effort to head these new tariffs off, Canada entered negotiations with the United States, talks that for a while seemed on track to ramp down the tensions. But on Friday Canadian negotiators walked out — and the U.S.-Canada trade war is now on.”
While U.S. officials say the talks broke down because of unspecified last-minute demands from Canada, Canadian officials blame their American counterparts. As the Toronto Star explains, Canada “was faced with a trade agreement that was suddenly transformed into an attack on Canadian sovereignty, an attempted psychological annexation that could have turned Canada into an American client state, a sort of North American Belarus.” With this in mind, wonders Krugman, “Does anyone seriously doubt that Canada, not the Trump administration, is telling the truth?”
On paper it may seem like the larger U.S. economy is poised to win a trade war, but according to Krugman, “the U.S. economy is far more dependent on Canadian goods than most Americans realize.”
“For example,” Krugman explains, “Trump has declared that the U.S. doesn’t need Canadian lumber, an assertion whose truth depends on the meaning of the word ‘need.’ The U.S. does indeed produce most of its own lumber, but Canada dominates the supply of lumber with a high strength to weight ratio, which is preferred by contractors for framing. Another example: The U.S. is a net exporter of crude oil, but imports millions of barrels a day from Canada, mainly into the upper Midwest. That region could in principle get its oil from Texas instead, but that’s an immediate non-starter: the pipeline infrastructure isn’t there and refineries need heavy Canadian crude rather than lighter Permian basin oil. Yet another example: U.S. imports of electricity from Canadian hydropower are small compared with overall consumption, but are often a significant part of total supply in New York and New England. And a disruption of the huge U.S.-Canada trade in automobiles and auto parts will be immensely disruptive to the auto industry on both sides of the border. U.S. automakers and other manufacturers are already at a competitive disadvantage because of Trump’s tariffs on Canadian steel and aluminum.”
While Canada may not have the ability to overwhelm the U.S. through retaliatory actions, “an all-out trade war would create a lot of pain in the U.S. in addition to inflicting severe damage to the Canadian economy. And all indications are that the Canadians will be much more willing to bear the pain of a trade war than Americans will – especially given that the great majority of Americans are already dissatisfied with Trump’s economic management.” According to Krugman, “Despite Trump’s best efforts, only a minority of Republicans — and nobody else — has been persuaded that the Canadians are acting badly.” And “on the other side, Trump has managed to convince Canadians of all political stripes that the U.S. can’t be trusted.”
As Krugman explains, “The truth is that it’s hard even to figure out what a Trump win would mean.” Trump’s claim that Canada will become a 51st state is “not going to happen,” and Krugman asserts that it’s hard to imagine Canada making any other concessions that will allow Trump to claim victory, “because until Trump went on the attack Canada wasn’t doing anything wrong. So it can’t promise to end its unfair policies when there basically weren’t any such policies.”
“The bottom line is that Trump is going to lose his trade war with Canada as thoroughly as he has lost his shooting war with Iran,” Krugman concludes. “But because he won’t face reality, trade with our northern neighbor will probably be disrupted until the narcissistic bully in the White House no longer controls trade policy.”
