Front Burner - Trump's trade war goes global

Episode Date: April 3, 2025

In the culmination of countless speeches, tweets and campaign promises, U.S. president Donald Trump has finally unveiled sweeping tariffs on goods imported into the country — from nearly every country it does business with.He dubbed it "Liberation Day," calling it the start of a new era of economic independence for the United States, saying it will bring jobs and industry back to the country. But some economists say the tariffs will throw international trade into chaos, with unpredictable knock-on effects, and possibly even cause a worldwide recession.Eric Miller is an international trade consultant and president of Rideau Potomac Strategy Group. He breaks down everything we know so far about the tariffs, what they'll mean for Canada and whether the free trade era as we know it is over for good.For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts

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Waiting for a long time. Late on Wednesday afternoon, Donald Trump stepped up to a podium in the White House Rose Garden while cabinet members, congressmen, coal miners, and auto workers watched from the lawn. An insignature hyperbole declared the day one of the most consequential in American history. April 2nd, 2025 will forever be remembered as the day American industry was reborn, the day America's

destiny was reclaimed, and the day that we began to make America wealthy again." He said that countries around the world have been taking advantage of American workers for far too long. For decades, our country has been looted, pillaged, raped, and plundered by nations near and far, both friend and foe alike, American steelworkers, auto workers, farmers, and skilled craftsmen. They really suffered gravely. They watched in anguish as foreign leaders have stolen our jobs, foreign cheaters

have ransacked our factories, and foreign scavengers have torn apart our once beautiful American dream. He singled out Canada. Canada, by the way, imposes a 250 to 300 percent tariff on many of our dairy products. It's not a pretty picture and we don't like it and it's not fair. It's not fair to our farmers. It's not fair to our country. For the record, that is not accurate. At one point, Trump literally brought out a chart that listed most countries that the

U.S. does trade with, and he went through how he thinks that they are ripping them off and how we plan to tariff them in return. So if you look at that, China, first row, China, 67 percent, that's tariffs charged to the USA, including currency manipulation and trade barriers. So, 67%, I think you can, for the most part, see it. Those with good eyes, with bad eyes. We didn't want to bring the — it's very windy out here.

We didn't want to bring out the big charts because it had no chance of standing. Fortunately, we came armed with a little smaller chart. So 67%... He then signed executive orders that put in place sweeping global tariffs on U.S. imports. This included a 10% blanket tariff on all countries and then additional tariffs on dozens of specific places like the EU, Japan, and China. It's important to say here that Canada,

along with Mexico, escaped those 10% blanket tariffs and any new specific country-focused tariffs, though this does not mean that our heads are out of the vice. I am here with Eric Miller. Eric is a Canadian, but he's based in Washington, DC. He's the president of the Rideau Potomac Strategy Group, which is a consulting firm that advises clients on international trade. Eric has also consulted with governments on the development of a number of trade agreements, and he's going to help us make some sense of these new tariffs and what the impact could be around the world. Eric, hi. Thank you so much for coming onto the show.

Thank you for having me. So let's start with the big picture here. We've been hearing about what Trump may or may not do on April 2nd for months now. And there was a whole range of options being presented to the president from very narrow targeted tariffs to extremely broad ones. Where does this fit into what we saw today? Well certainly this represents a significant reshaping of the United States's trade relationships with much of the rest of the world.

And what you've seen is a willingness of the Trump administration to impose sweeping tariffs on many of its traditional allies. You note, for example, with interest, the tariff on Israel, which is a very close ally of the United States, 17% tariff. You see a tariff on the UK, 10%. You see the European Union, 20%. You see tariffs on Myanmar and on Ukraine, countries in conflict. And so it's a very significant, broad-ranging group of countries from the very wealthiest and largest traders to some of the smaller countries around the world

We'll get into Canada in more detail in a few minutes, but just on the rest of the countries You know much of what was announced today was also Illustrated in this chart right that that Trump actually took out During his speech in the Rose Garden. Yes. Which is kind of a really wild visual to think that all of these countries around the world are trying to figure out what's going to happen to their economies by squinting their eyes to figure out what was on this chart.

But the chart lists all these countries, some 60 countries, and then there were two columns after each country. And just explain to me what was going on there, like what he was doing. So the two columns were first the column entitled, tariffs charged to the USA. And then the second column was USA discounted reciprocal tariffs. So what President Trump stated and what he decided to do was to provide a discount on the tariffs for many of the countries that were affected. And so, for example, Vietnam,

which has grown to be an absolutely powerhouse of a trader, they calculated that it had a 90% average tariff to goods from the United States, and they cut it to 46%. So just slightly more than half. You look at Taiwan, it went from 64% to 32%. And so the decision was to put it to half, presumably to encourage these countries to reduce their barriers and to begin to make arrangements with the United States to address some of its concerns. So in this case, the US looks beneficent and magnanimous in its approach to these countries and is still able to highlight where the tariffs could go if the countries choose not to cooperate. Right. And then on top of those country-specific tariffs, I just want to be clear here, there's also this 10% flat tariff, right, that he applied, which doesn't apply to Canada and

Mexico. Am I correct to say that? Correct. Okay. And I know you've mentioned a couple of specific countries so far, but just take me through the ones that you see as being hit particularly hard here. For example, I see that China got hit with 34% on top of the 20% that they already have. So is that like 54%? So they get an additional 34% today. This is in addition to the 20% tariffs for Sentinel that have been added to China since President Trump's return to the White House.

And this is on top of an average tariff on Chinese goods of 20% that was in place when President Trump took the oath of office. And so in essence, you're looking at about a 74% average tariff. In addition, there was a piece buried within the order that President Trump signed, essentially stripping China's ability to use what's called de minimis. So if you have a shipment that is relatively low value, you are able to bring those goods in without having to do a full customs declaration and pay duties. That has gone away. And the reason it's gone away is because companies like Tmoo and Shien, which were founded in China, have become absolutely massive exporters direct from Chinese factories to US consumers and all of these goods come in valued at less than $800.

The US customs process more than a billion small packages last year valued, many of them valued at less than $800 and the Trump administration has made the decision to essentially curtail the ability of Chinese factories to sell directly to U.S. consumers in terms of consumer goods such as apparel. Of all of the countries listed, which ones are poised to be hurt the most here? One of the things I looked at was what were the relative impacts of supply chains. So if you look, for example, at the textile and apparel sector, very important for consumers in terms of their ability to get affordable clothing. But when you look at Cambodia, it was hit with a 49% tariff.

It's a major apparel producing country. You had Bangladesh, 37% tariff. And then you compare that to 10% on Honduras. 10% is significant, but its rate is much, much lower than the rate that is charged on large Asian apparel producers. So in essence, the underlying incentive is to favor Central American apparel production, which also includes El Salvador with their 10% tariffs and Nicaragua with their 18% tariff as compared to the large producers in Asia. And so embedded within this, there are a whole series of shifts about who's relatively more competitive. If you're trying to figure out big picture, the story that these tariffs told today,

like, and the ultimate goal that the US administration has, what is it? The ultimate goal is, number one, to drive investment into the united states and so very clearly you heard president trump talk about uh the investments by softbank by johnson and johnson uh, and and a number of others people who decided to move production from offshore locations into the United States.

Apple is going to spend five hundred billion dollars. They never spent money like that here. They're going to build their plants here. SoftBank, OpenAI, and Oracle, great, great companies, are investing five hundred billion dollars almost immediately. Nvidia, a hot company, is investing hundreds of billions of dollars. So this is going to be a big part of the US narrative in actually explaining to its population why these tariffs are a good thing. So that's number one. Number two, a key message out of this is business is business to President Trump.

And so ultimately, his view is that I can be friends, I can be allies from a foreign policy perspective, but when it comes to commerce, we are very focused on the narrow interests as he sees it of the United States. This represents in many ways a shift from the foreign policy we've seen in the United States in the post-World War II period, where foreign economic policy, foreign security policy, and other sorts of diplomatic, Bite Back with Abbey Sharp, I'll be dismantling the multi-billion dollar diet industry that keeps us in a cycle of self-loathing and food fear.

Join me every Tuesday for expert interviews, engaging conversations, and my signature science and sass to bust myths, correct misinformation, and help you break free from die culture for good. Listen for free on the Seeker app or wherever you get your podcasts. Let's talk specifically about how Canada came out of this day. Leading up to today, we have been facing tariffs on steel and aluminum, also tariffs on imports of cars and some parts that hits tonight or today when people are listening. There's this current pause on the 25 percent fentanyl tariffs.

But as we've talked about, none of the tariffs announced on April 2nd actually applied to Canada, including the broad 10% one. Just tell me more about what you make of the fact that Canada and Mexico were excluded essentially from the announcement today. Yeah. So number one, it could have been a lot worse. When you looked at the order on February 13th and you said we will count as reciprocal things like GST, we will look at softwood lumber, we will look at digital services tax, we will look at the carbon tax, a whole series of other areas. When you started to add that up, the kind of baseline expectation that you were working on was 50%, 60%, 70%,

depending on how they chose to interpret it. But ultimately, a key message from this is that, broadly speaking, the Canadian advocacy strategy is working. The United States is starting to recognize that going after Canada on trade issues brings with it costs to the United States. And so in many ways, Canada has become like that porcupine

that the US is choosing to start to hug and perhaps strangle. And then they've realized that, you that, I could keep doing this, but I'm going to pay a significant cost. Now, all of that being said, if I'm an aluminum producer in Quebec, if I'm in the auto industry in Ontario, I am extremely worried because the 25% tariffs on Canadian steel and aluminum still in effect. And a lot of those components go into, say, the automotive supply chain, the aerospace supply chain. Then you have the 25% tariffs on all automotive imports from abroad into the United States,

which puts Canada very squarely in the crosshairs of the United States. What you will see is a radical reshaping of the auto sector in North America. But first and foremost, before all of that happens, you're going to see chaos and likely plant closures. Because if you look at the average profit margin on a vehicle, it is not that much. So for a small vehicle, and your average profit margin on vehicles can be six, seven percent. So if you take a 25 percent tariff or even a 12 and a half percent tariff,

and you compare that to your 7 percent profit margin, by definition, if there are tariffs in place, you're losing money. Right. You know, some of the large SUVs, probably the minivans that are made in Windsor, those continue to look profitable. But if I'm selling a smaller vehicle, that begins to look much more questionable. And so it means that your average vehicle that a consumer might go and buy for $25,000 or even $30,000, and this is internal combustion engine, not talking about electric vehicles,

those vehicles become money losers for the auto companies. That means that those vehicles very much run the risk of being done away with. So you look at a much, much smaller auto sector, which means a smaller auto parts sector, less availability for consumers, and certainly a big hit for the Canadian parts sector and certainly for the assembly sector. And so what the US has done with these tariffs is to essentially take a massive leap forward in destroying the framework that has governed the North American auto sector since 1965 and the auto pact. And of course, that will bring with it consequences not only for Canada and its economy, but also

for the US auto sector and the broader US economy. It might also be worth noting here on Canada specifically, I mean, there was some signaling that there might be other sectoral tariffs coming lumber. And then also Trump did take a run at us in his very long speech. As we mentioned in the intro, he took a run at our supply management system,

which protects dairy, poultry and eggs. They do the first little carton of milk at our supply management system, which protects dairy, poultry, and eggs. They do the first little carton of milk at a very low price, but after that it gets bad, and then it gets up to 275, 300%. So when they're figuring what's Canada charging, they say, oh, about 2%, 3%, but take a look at what happens down the road when you look a little bit.

What he says about our supply management system is misleading, these like 200-something percent tariffs. He cites they only come into effect if certain quotas are hit and those almost never get hit. But it does, I think, signal that like he's kind of obsessed with it. And so he seems to be wanting to come for it in the future too, right? Yes. So certainly President Trump was going to mention the dairy sector.

That is something that has been very much on his mind. There have been some disputes under the KUSMA or USMCA agreement, as it's called in the US, about the nature and functioning of Canada's supply management system. And the United States has been very frustrated about what it sees as Canada's unwillingness to live up to at least what it called the spirit of the agreement that was reached and signed and came into force in 2020. Of course, it's politically very, very complicated for Canada to make further moves on dairy. The dairy industry in Canada tends to be concentrated

in Eastern Ontario and in Quebec, and those are electorally important regions. And so, it is something that President Trump is focused on, but it's kind of the case of the unstoppable force meeting the immovable object. And part of why President Trump is very focused on this is because the US runs a massive surplus in dairy production. And that means prices are relatively low and farmers have a hard time making a living. Whereas if you're a dairy farmer in Canada, you're doing very well because supply management guarantees you a high income and stable prices. The obvious place to go is to what could happen next, right? So this all comes into effect, all of these sweeping tariffs come into effect apparently at midnight. And maybe let's just run through how this could play out big picture. And first, this scenario, what happens if other countries

start to retaliate here? Take me through some of the scenarios, what could happen? They will absolutely retaliate. The European Union has already put in place some retaliation over the steel and aluminum tariffs. They've made clear that they're going to retaliate very significantly. I think one of the big picture challenges that you're going to see out of this is that there are going to be certain countries that

have significant surpluses of goods that they used to sell to the United States, which they're not selling anymore. that there are going to be certain countries that have significant surpluses of goods that they used to sell to the United States, which they're not selling anymore, and they will look to place in other markets, which will lead countries to react still further. So the possibility that this gets out of hand and that countries that are not the United States are putting tariffs on each other, or at least using trade remedy measures, the so-called anti-dumping or countervailing duty measures, are pretty significant. So that is issue number one.

Number two, I also fully expect countries to take measures which are not focused on tariffs. And so the United States as a massive economy is able to put tariffs on countries at a scale that many other countries can't match. Ultimately, dollar for dollar tariffs are not feasible if you're a midsize or smaller economy, because then you're in a situation where you're significantly hurting yourself.

So then you look at what else gets dealt with. So you've seen in Europe, for example, Portugal has put purchases of the F-35 fighter under review, as has Canada indicated that it wishes to do that. You will see undoubtedly measures that go after Tesla and some of the interests of Elon Musk, just like you've seen Premier Ford in Ontario cancel a contract with Starlink. At the same time, there's a very strong incentive, and the Trump administration knows this, for countries to say, well, let's find a way to make a deal where we can reduce the tariffs on certain types of goods or on a whole series of goods.

Because this is resetting the competitive landscape, and given the size and scale of the US market, if you are able to sell duty-free or much reduced duty into the United States, that's going to give you a big advantage. And so with the rest of the world being tariffed, ironically, you could see a position where in certain products in certain sectors, if this stabilizes to a situation where the Canada-US-Mexico agreement remains in force and is strengthened, that

Canada could actually be better off relative to its competitors than it was before. It's an opportunity. Trade wars bring weird opportunities as well as bad outcomes. But just paint me the bleaker picture though. Like what could happen to our economy, to the US economy, to the global economy here? Yeah. So number one, there will be less international trade overall, which will reduce the incomes of citizens around the world, reduce consumer choice, and make things work much, much less efficiently. It also means that rent-seeking activity and other examples of inefficiencies increase. So tariffs are a great opportunity for people

to use arbitrage as a way of making, of achieving benefits. So overall, you're gonna see a reduction in overall GDP growth. For Americans themselves, you will see some new investment, but overall, you will see US international participation in global supply chains and international business significantly reduced. There are, for example, US insurance companies that supply significant quantities of insurance to say government employees in different regions around the world. Well, it's easy enough

for those countries to say until you remove your 25% tariff or whatever it is, we're going to forbid insurance company X from offering those services to the government in our country. And so you're going to see lots of punitive actions, which will see less dynamism in terms of offerings of goods and services around the world. And then you have to look at the diplomatic and political outcomes where there will be much greater acrimony. This will only accelerate a pulling apart of the Western Alliance as the European Union deals with a 20% tariff and the US may feel compelled to respond to their response. You'll see certainly frustration in places like the UK and Australia, and it will underscore

to these traditional allies that the United States is not, quote unquote, a reliable ally that can be counted on and trusted. Right. And I know you mentioned a lack of GDP growth, but just to put a point on that, like I hear economists talking about the potential of a global recession. Yes. So you'll see very likely a global recession because jobs and trade have historically paid more than the average jobs in the economy that are not linked to trade. And of course, there's follow on effects where if there's less production of goods and less use of goods, it means that oil and gas exports are perhaps less vibrant than they need to be.

And so there's a softening of the use of all sorts of activities and uses that are important to Canada, but also to countries around the world economically. Eric, just before you and I got on the line, I watched liberal leader Mark Carney come out and say... So, President Trump has just announced a series of measures that are going to fundamentally change the international trading system. Now, in doing so... I think from listening to you today that you would

agree with Mr. Carney, right? I just do you see any way that the genie goes back in the bottle here after today? No, no. So both President Trump and Carney have said that today is a significant day where the trajectory of international commerce has changed. You have seen essentially an unmaking of the economic model that the world and North America have pursued since the mid-1980s, where there is less economic interdependence, there's less international trade, there's less openness to internationalence, there's less international trade, there's less openness to international trade, there's more restrictions on foreign investment. And certainly some people would say that some aspects of this curtailment of large-scale level of interconnection are to be welcomed. That certainly, though, does mean that we are at the end of

an era, regardless of what you think about the specifics of all of this. President Trump took action on steel and aluminum in his first term, but the amount of tariffs he did in his whole first term was very, very small compared to what we're looking at now. In addition, the actions which were taken in his first term were very much done through what you could call regular legal order. President Trump's use of the International Economic Emergency Powers Act is something that is really very much unprecedented and new in this term. And so what the message is, is that trade is really subservient and is a product of and is a vehicle of national security.

And so this reordering of the world economy is something that is extremely significant. And it makes both Prime Minister Carney and President Trump correct in assessing the significance of the day and all of the things around this day. Okay. Eric Miller, thank you very much for this. You're very welcome. Before we go today, hours after today's announcement, the US Senate voted to undo Trump's 25% fentanyl-related tariffs that he currently is dangling over Canada.

It was passed by 51 senators, including four Republicans. It has, however, virtually no chance of making it through the Republican-controlled House. All right. That is all for today. I'm JB Poisson. Thanks so much for listening. We're going to be following this story really closely. So stay tuned.