Front Burner - What is Trump's tariff endgame?

Episode Date: February 4, 2025

On Monday, after a long phone call with Prime Minister Justin Trudeau, U.S. President Donald Trump put a pause on the tariffs that were supposed to come into effect the next day.The tariffs, 25 per cent on Canadian goods, and 10 per cent on Canadian energy products, have been delayed for at least 30 days. In return, Canada is implementing a billion dollar border plan, including 10,000 frontline personnel, and committing to appointing a fentanyl czar.Despite the reprieve, Trump has said little about what it would take to avoid the tariffs for good.CBC Washington correspondent Alex Panetta talks to guest host Jonathan Montpetit about why Trump keeps coming back to tariffs, and what his endgame might be with them.For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts

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Hi, I'm Jonathan Moblisi and for Jamie Poisson. On Monday afternoon, with a trade war looming in the background, Prime Minister Justin Trudeau and US President Donald Trump spoke on the phone for about 45 minutes. They apparently had a wide-ranging conversation that ended with some good news for Canada, at least for now. The tariffs that were supposed to come into effect today, 25% on Canadian goods, 10% on energy products, have been delayed for at least a month. In return, Canada is implementing a billion-dollar border plan,

including 10,000 frontline personnel and committing to appointing a Fentanyl Czar. Trump has insisted for weeks that the Fentanyl crisis is a major reason for the tariffs, even though only a tiny fraction of illegal fentanyl in the US comes from Canada. The president has repeatedly said that he wants Canada to join the US as the 51st state. Just yesterday he said that he would quote, love to see Canada join the Union. Trump has also insisted that he's not making any concessions on the tariff front and has said little about what it would take to avoid them for good. So why does Trump keep coming back to tariffs? And what is it that he really wants?

CBC Washington correspondent Alex Panetta is with me to talk through all that and more. Hey, Alex, thanks for coming back on the show. So good to be here, John, and to hear your voice. It's been too long. It has been too long. Alex, I just want to start with a note for our listeners that we're recording this at around 5.30 on Monday. This is a fast moving story. The 25% tariffs have been delayed for at least 30 days. What do these last minute deals with Mexico and Canada, what does this breakmanship tell us about where Trump's head is at and what he really wants? That's the multi-trillion dollar question

looming over the global economy. And he might want different things from different people at different times, right? So what he clearly wanted from Canada in the last few weeks and wanted from Mexico was some stuff at the border, right? And this kept getting conflated with other economic asks. And you'd have some of Trump's defenders saying, all he wants is for you to do some simple common sense stuff and

stopping fentanyl, just get that done. But then Trump would keep saying stuff like Canada's trade deficits unfair, I don't like what their farmers do. I don't like what you know, like on dairy, I don't like the, hey, also, by the way, they should become a state. It was really hard to disentangle all those things. I think we have just a touch more clarity right now. So Trump says, okay, these tariffs are off for 30 days. Now we're going to talk about economic concerns. So it's really it's both. Like he wanted some changes on the border. He also wants a bunch of economic changes. We have big deficits with Canada, like we do with all countries. I mean, I look at some of the deals made, I say, who the hell made

these deals are so bad? And he can't stop talking about making Canada a state. People wanted to play the game right, it would be 100% certain that they'd become a state. But a lot of people don't like to play the game because they don't have a threshold of pain. And there would be some pain, but not a lot. The pain would be some pain, but not a lot. The pain would be really. Who knows what he wants ultimately, but yeah, you know, we've got some, some, some, at least

some peace when it comes to the border and fentanyl. It's been such a whirlwind couple of days, couple of weeks. Um, and, and, and here we are. We're, we're trying to understand Trump and, and you know, we're looking to you, Alex, to kind of like take us inside his psyche when it comes to, to tariffs. Why does he love tariffs so much?

So, you know, I've described in my own stories as tariffs as his one true love when it comes to public policy, um, even immigration. Right. He's been inconsistent on that over the years. Like in 2012, when, uh, Mitt Romney lost that election after the election He said we should moderate on immigration if we want the Republican Party to win again

But you have people in this country for 20 years. They've done a great job They've done wonderfully they've gone to school. They've gotten good marks. They're productive now. We're supposed to send them out of the country I don't believe in that Michelle and you country. I don't believe in that, Michelle, and you understand that. I don't believe it. Now, he realized that's not where the action was among the Republican Party grassroots and he pivoted hard on that. Tariffs are a thing he's never budged on. I'm going back to a 1987 ad he placed in a New York City newspaper where he complains about Japan taking advantage of the United States and saying we need to tax them, basically talking about tariffs. And I was talking to someone who lived in New York at the time, uh, just thinking that

maybe his, his view on this was informed by seeing Japanese companies buying up New York state property that he wanted. And he's just never budged on this, on this, uh, uh, public policy view that our allies are really not our friends. They rip us off and we need to punish them. Yeah.

So it's like, it's, it's this through line throughout his whole career. And it was a feature tariffs. We're a feature of his first term in office, right? He slapped tariffs on a wide range of products from China and he kind of sparked a mini trade war with Canada by putting tariffs on steel, aluminum, and softwood lumber.

Looking back now on those first term tariffs, how did that work out for Trump? You know, there's, this debate is unresolved. There are people who will say that they were a resounding success. And if you look at investment in manufacturing facilities in the United States, there's this flat line in investment in building new manufacturing facilities, and it kind of bumps up a little bit in the early 2010s, and it goes up a little bit after 2016. But then later, like it just soars after 2020, historic levels, hundreds of billions of dollars being invested in new plants in the US.

And so Trump and his defenders will say, well, that was obviously the result of this changed world that he helped change by putting tariffs on a lot of people Cutting corporate taxes in 2017 and tax cuts and jobs act And you know the Trump critics will say well wait a second that didn't happen when he was president happened in the early 2020s when Joe Biden was president and it's a result possibly of of the investments in infrastructure and in electric vehicles and in alternative energy production under Biden. So there's that debate.

One thing tariffs have not done is bring back a whole bunch of manufacturing jobs, right? So you're seeing like over the last three, four years, just like I said, hundreds of billions of dollars invested in new facilities, whether that leads to a renaissance in American hard hats going to work in the morning, making these blue collar paychecks, hasn't been decided yet. I don't think it's an overstatement to say that most mainstream economists aren't really big fans of tariffs and support for free trade has, you know, long, long been a pillar of conservative politics in the U S to what extent is Trump at odds with other Republicans when it comes to tariffs, have they jumped on the bandwagon

willingly? Um, some of them know it will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. It will drive the country. odds with other Republicans when it comes to tariffs? Have they jumped on the bandwagon willingly? Some of them, no. It will drive the cost of everything up. In other words, it'll be paid for by American consumers. I mean, why would you want to get in a fight

with your allies over that? You know, you have the Wall Street Journal, which is, you know, a representative of the old wing of the Republican Party and the old country club Republicans putting out this editorial the other day, you know, calling this the dumbest trade war ever. And, you know, there's definitely a lot of support for that point of view in the Congress. But it's right now, it's in retreat, right? I'm pretty sure there are not more than a handful of Republicans in the Senate who think tariffs on Canada are a good idea.

And yet when Howard Lutnick was at his confirmation hearing for Commerce Secretary, you had these cryptic comments in public, people saying, we discussed this thing with Canada in your office. I just want to know what the plan is. Like basically they're, they're afraid to, to challenge, uh, Trump in public for a couple of reasons. One, they don't want to fall, you know, get offside on a president who's more popular than they are with their own supporters.

And the second thing is I think there's some understanding that Trump is going to use these things as negotiating leverage to a certain extent, and you don't want to negotiate against the United States in public. So people are complaining, but not that much. All right. Since we're, we're kind of getting our nerd

on here a little bit, let's, uh, let's take it one step further. You know, are there any historical precedents that you can think of for how Trump approaches trade policy? And I think the last time an American administration tried to put in large scale, large scale tariffs

like this was way back in 1930, the much discussed nowadays Smoot-Hawley Tariff Act. Alex, like is, is this, is this the right kind of historical analogy we should be looking at here? You know, I, so I wrote a story the other day saying that this wasn't just a trade spat. This is North America as we know it changing. Now that's tempered a bit by the fact that,

three days later, we don't know if these tariffs are ever coming in or not. But the truth is it was an interruption after roughly 90 years. Like since you mentioned smooth Holly and you're correct to mention that because in 1935, but then prime minister King and President Roosevelt negotiated the end of hundreds of these tariffs

on a whole bunch of products. And so they negotiated the end of these tariffs. And then, you know, 30 years later, we get the auto-packed and 20 years after that, we get the Canada, US free trade agreement, and then we get NAFTA with Mexico, and then we get the USMC or Kuzma a few years later. And so there's like this general trend line toward liberalization. And that moment definitely appears to be over.

You're not talking about a free trade area of the Americas anymore. Like the sort of the liberalism era seems to have paused. And now it's kind of in retreat too right you're seeing Trump talk about just just crippling tariffs on products across the board and yeah you're you're back to smooth hauling I mean he we would be if had he done this and but you know he didn't apparently and maybe he will maybe he won't in the future Sure, what else? Auschwitz, not long ago, not far away, features more than 500 original objects, first-hand accounts and survivor testimonies that tell the powerful story of the Auschwitz concentration

camp, its history and legacy, and the underlying conditions that allowed the Holocaust to happen. On now exclusively at ROM. Tickets at rom.ca. What does a mummified Egyptian child, the Parthenon marbles of Greece, and an Irish Tickets at rom.ca. gotten artifacts, made it to far away institutions. Spoiler, it was probably the British. Don't miss a brand new season of Stuff the British Style. Watch it free on CBC Gem. Let's try to unpack some of the reasons that Trump has given for imposing these tariffs in Canada. You mentioned a bunch of them off the top.

Let's just kind of go through some of them. So he has said that it's because of a $250 billion trade deficit with Canada. It's actually only a $65 billion trade deficit. He said it's about fentanyl crossing from Canada into the U S less than 1% comes from Canada. He said it's about illegal immigrants. Same thing. Less than 1% comes from Canada. Earlier today, he said

it was about U S banks not being allowed to operate in Canada when in fact they are allowed to operate in Canada. And the latest news as of Monday night is that by adding some anti-drug measures at the border, Canada has convinced Trump to delay the tariffs for 30 days at least. Now, Alex Panetta, you're a veteran Washington correspondent.

How do you make sense of all this? Look, it's driving me crazy. Like you're describing the central struggle in central, uh, struggle in my mind over the last several months. Like I wake up in the morning, I go to bed at night, often trying to figure out the end game here. Uh, so I'll fill you in on my own personal journey, right? And back in November, I was of the view when Trump first threatened these tariffs,

I was like of the view that he wanted a quick win on the border. Not too different from what we got today, right? Then a few weeks later when I started talking to people around him who worked on fentanyl policy for him, they're like no Canada actually has a real problem and stop talking to me about this 1% you know fentanyl caught at the border comes from Canada. They're like no you, you guys, your banks are a global hub for money laundering. These organizations that sell this fentanyl are using Canada as an office. You guys have a problem here. And so then, okay, so the second phase of my evolution was,

oh, there actually are significant things Canada needs to do perhaps to sort of get good with Trump on the border and the drug trade. And so then he starts talking about all this other stuff, like you just mentioned, you know, dairy and trade deficits and cars and lumber and then making Canada a state and I'm like, wait a second here This is nothing to do with the border Canada does not allow banks to go in if you think about it That's pretty amazing. If we have a US bank, they don't allow them to go in Canada's been very tough on oil on energy. They don't allow our farm products in essentially. They don't allow a lot of things in and we allow everything to come in. It's been a one-way street. And now I've kind of come full circle today and you see his statement after the agreement with

Trudeau and the agreement with Trudeau is relatively mundane. It's stuff that, like I said, Canada mostly had committed to doing on the border. But then that statement also says, and now I'll be talking to Canada about these economic issues in our next negotiation. So it's kind of everything. It's all of the above. And the only unresolved question in my mind is whether that 51st state stuff comes back because that's, that's the big one. So, so what, what can we expect like over the next 30 days, are we, are we just kicking the

can down the line? Are there going to be the goalpost going to continue to shift or are we going to see some, um, concretization of issues that would, could lead us to a more lasting solution of this trade trade spat? Yeah. So the 30 day timeline is a problem, right?

Cause in 30 days, the liberal party, Canada will be on the verge of picking a leader. Uh, and I don't like, I don't know if Trudeau is going to announce some sort of agreement with Trump on economic concerns. Okay. Well, let's say Mark Carney or Christie Freeland's prime minister for a few weeks.

I don't know. And then there's an election campaign. Uh, who's negotiating this in the midst of an election and, and the government, by the way, in Ottawa could be in caretaker mode where the civil service is not supposed to make any major waves. I honestly have no idea what the timeline is going to look like. I want to get us back to our original mission here, which was like, you know, trying to get to the bottom of Trump's obsession with, with tariffs. So another reason that's kind of been floated about, you know, why he's so fixated with, with

imposing tariffs is that he needs revenue to finance a continuation of a generous set of income tax cuts. How much so that he's revenue to finance, uh, a continuation of a, of a generous set of, of income tax cuts. How much stock should we put into that, uh, justification? I think it's part of it. Um, and you know, okay, so more broadly, there's

an issue with the United States, uh, deficit and debt, it's, it's, it's, it's growing to an uncomfortable, um uncomfortable degree and you want to at some point find new sources of revenue. The tax cuts plan that Trump signed into law in 2017 expires in a few months and that's because if you want to take a shortcut around the United States Senate's filibuster rule and just pass a bill with fifty one votes it needs to be a certain type of budget bill. And to make the tax the elements in that bill permanent you need it to be revenue neutral you can't you can't add to the deficit that's the deficit you need sixty votes in the senate and that's not gonna happen. So there might be some temptation from republicans to sell kill it's put some tariffs in the Senate and that's not going to happen. So there might be some temptation from

Republicans to say okay let's put some tariffs in the bill and then we raise some money then we can do more tax cuts and they'll be there forever. I got doubts about that as a strategy because if you put tariffs in the bill you're entrenching tariffs permanently as opposed to by executive order which can be undone at any moment and I don't think Republicans are going to want to put tariffs in legislation forever. And then you could lose votes in the Senate. So I don't think that's going to be the reason. I think they might look at it. They'll sniff around that as a solution, but I don't think that ultimately is where they

go. I just think they have a problem, a budget problem, and tariffs are seen as part of the solution. It can't be the whole solution. Cause like these tariffs he's talking about would only cover a fraction of the, uh, the, um, of the cost of those tax cuts. To what extent is this about leverage?

For example, the, the trade agreement between US, Mexico and Canada, USMCA, it's set to be renegotiated next year. Is this trade war Trump's way of softening up Mexico and Canada to extract better concessions? Is trade policy just a blunt tool for him to get what he wants? Absolutely. Right? And the thing about maintaining tariffs as leverage is you have to use them sometimes, right? Just to use the analogy of a schoolyard bully. You can go around threatening

everyone and it only works if you're willing to punch one kid in the face. Right? You got to bloody somebody's nose. Because if you go around just saying, I'm going to use these tariffs and you never do, people just laugh at you. The markets already seem to be discounting his threats, right? The stock market had barely reacted over the last couple of months to his tariff threats. It started taking them seriously on Friday when the stock market dropped. I think half a point on Friday, the Dow Jones dropped half a point on Friday and they dropped like another point and a half Monday morning. And so clearly, you know, he had the market spooked, which indicates that he's

finding new creative ways to to exercise this leverage. But at some point he's going to have to bloody someone's nose. And no one, not Canada, not Mexico, not the European Union or Asian countries want to be the country whose nose he bloodies. So expect more tariffs sometimes and expect more bluster. The trick is knowing which is which. There are a number of advisors around Trump who believe firmly in the benefits of tariffs. People who have thought very seriously about this, whether you agree with them or not. One argument they make is that tariffs can help revitalize the U.S. manufacturing sector. That was an argument that

Trump was making again today in the Oval Office saying he wants to see all American cars to be built in America. We don't need them to build our cars. I'd rather see Detroit or South Carolina or any one of our Tennessee, any one of our states build the cars, they can do it very easily. We don't need them for the cars. I want to examine this argument in a bit more detail, Alex, and I think maybe a good place to start is NAFTA and the glory days of free trade. I'd also like to welcome here the representatives from Mexico and Canada and tell them they

are in fact welcome here they are our partners in the future that we are trying to make together. What did NAFTA do to manufacturing in the US? NAFTA is a dirty word in large swaths of the United States. All right I went to some counties in Pennsylvania north of Philadelphia before the election. And I started my trip in two counties, Luzerne and Carbon County, which had voted for Barack Obama. These were like staunch Democratic counties. And to understand those counties that flipped to Trump, I think they now vote like 70% for Trump, right? To understand these Obama to Trump counties, you need to understand trade. And I talked to people who talked about all the manufacturing

jobs that left after NAFTA came in. You know, they were talking like, I don't remember the specific industries they were referring to, but it could be furniture making, I mean, you know, basket weaving, I don't know, like they made a whole bunch of stuff. And they say within months of NAFTA taking effect, these jobs went away. Okay? Now Now that's their anecdotal experience and their reality that they lived in in these communities. Overall NAFTA didn't cost the United States that many jobs. If you look at you know manufacturing employment in the United States, the early 90s saw a recession

across North America and you know manufacturing jobs didn't really grow back of that much in the in the nineties but you can see this massive drop but after probably had in effect small and then seven years later six years later you get trying to join in the world trade organization our products will gain better access to china's market in every sector from agriculture to telecommunications automobiles.

By adding China to the WTO we strengthen the organization by further integrating China's 1.2 billion people and one trillion dollar economy into the world market network. And then you see manufacturing employment in the United States falls off a cliff and you know for years the sort of the general political consensus around this was, well, you know, it's, it sucks. It's too bad for people who've lost, you know, jobs in factories, but guess what?

We're going to have all these new service industry jobs, salaries are higher. Uh, the goods we buy are cheaper. But a few things happened in the, in the subsequent years. Number one is that China started moving up the value chain. Suddenly they're making artificial intelligence

products and they're taking like, you know, employment in every sector is, is, is, is at risk. The second is you realize that the absence of a manufacturing sector is a national security risk. Um, and not just that, but in terms of cohesive communities, uh, that, that, you know, um, a world where working class people have lost, you know, jobs that make them, that

bring pride to themselves and their families and are told either learn to code or, you know, go work at McDonald's. That's not a happy cohesive society. And so the, the, the, the political consensus on this is swung the other way. It's like, we need manufacturing now that manufacturing is fundamentally different

from other types of employment. And, and now you're, you're, you're living with the sort of the backlash to that globalization era. You know employment. And now you're living with the sort of the backlash to that globalization era. You know, you're talking about reversing a trend that is several decades long, you know, that this trend towards globalization, this trend towards freer markets, dispute resolution mechanisms, that sort of stuff like that. That, you know, it took many years for the economies of the US and Canada to kind of adapt to this reality, to adapt to the reality of NAFTA. Reversing that

process, Alex, how difficult, how disruptive will that be? Are we already, is that, or is that process kind of already underway and we're, you know, we don't have that much further to go in order to kind of reverse that, that, that, that process? Well, I don't have that much further to go in order to reverse that process? I guess it's already begun. I mean, how many Chinese cars do you see on the roads in Canada? Right.

And they're inexpensive. And so we're paying a lot more for cars than we otherwise would in a completely open trading system. But I think most people have agreed that it's probably a price worth paying. Just because you want to have an auto sector in Ontario. You want to have the ability to make stuff.

And somebody around who worked for Trump on trade policy in his first term told me, like, this is the big issue. This is auto construction is the big, his big objective here. And what he told me is this, look, um, Australia is not going to have a car sector, uh, the UK auto sector is going to disappear. He said, look, we are determined. He's speaking to the United States are determined to have an auto sector. And you have to decide whether you want one with us and that's going to take

tariffs and it's going to take a really muscular trade policy and, uh, Canada. But the thing, see, I think Canada had done just about everything it had to do to be inside the tent. It put tariffs on Chinese vehicles and other products. It kicked Chinese companies out of Canadian mines. It kicked 5G, Huawei out of the 5G network. It had done everything it had to do to be inside the American tent. And the thing that was so terrifying about this 25% tariff threat is it would have meant

there is no American tent. There's no American orbit. It's like every person in every country for itself. And that's a scary world for Canada because we've never been like kind of untethered to a major superpower throughout our entire history. And we don't have the economy, the geography, the muscle memory for that. Now we'll see. Maybe we continue to be tethered to the US economically and all just about every Canadian, but as you mentioned several times, Trump keeps talking about making Canada the 51st state. I mean, like he said it again today. So I say, why are we doing this?

Why do we, why are we willing to lose between $100 billion and $200 billion a year? We don't need them. As a state, it's different. As a state, it's much different. And there are no tariffs. So I'd love to see that, but some people say that would be a long shot.

And I feel like a lot of Canadians aren't sure whether to laugh this off as a joke or to start panicking. Um, Alex, what's your latest read on, on this talk about us becoming the first 50 first date? I think he's testing the waters. Uh, and this is just my own opinion. I don't have, uh, I don't have insight into his, his thinking to, to, you know, report it. I just, I, I, I think he's testing the waters,

um, to see how people react. People have reacted very badly in Canada. It's not popular in the United States either. A big majority don't like the idea, partly because it's Trump. A lot of Americans who dislike Trump, Democrats, don't like the idea because they just don't want to indulge him on that. And a lot of conservatives, Republicans don't like it idea because they don't want to, they just don't want to indulge him on that. And a lot of conservatives, Republicans don't like it because it's like, well, wait a second here, how many, how many Senate seats is Canada going to get?

And it's like, how many blue seats are we adding to the Senate? How many, how many electoral votes does this mean for Democrats forever? Right. So it's not going to get through the U S Senate. It's not going to like, it would have to go through Congress. It doesn't have the votes for it. It's I just don't see it getting anywhere. But, um, if Canada wants to, uh, stave off that,

uh, that pressure, there are a few things that have to do to get stronger at home and including like reinvesting in hard power and hard economic power too, in a way it hasn't. Okay. Alex, last question. And maybe this is the perennial question, but still an important one.

Are we, are we playing a fool's game by trying to find rationality in Trump's actions, like trying to find a reason to his rhyme or does dismissing it as incoherent bullying ignore a larger goal that's at play here? No, I don't think it's wrong to try and figure out his motives because it, you know, I think it turns out everyone had a point. Like people saying, oh, he just wants more border measures.

Oh, he's just using, it's just a negotiating ploy. Oh, he's just picking on Canada to send a message to other countries. No, he's also doing this for other economic reasons. It turns out everyone was kind of right. Because like, if you look at the result today, yeah, it was just border measures. He's happy he took the win.

They weren't massive changes, but he got some changes. Two, it sends a message to the rest of the world. Look, I'm willing to go through with this with my closest trading partners and neighbors. I'm definitely willing to go through with it on Germany. I would advise Canadians not to fight too much amongst themselves. You know, like I thought it was a mistake for people to, uh, to be talking about what sorts of threats were off the table. Um, I think you sort of want to let him believe that every single thing he can

imagine Canada would consider doing to him. And that would keep him in check a little bit. I don't, I don't think you take any, um, any leverage off the table before he, uh, he announces the tariffs are off. Alex Panetta. Thanks so much for joining us. Good to be chatting with you again, John. That's all for today. I'm Jonathan Mopetzee.

Thanks for listening to Front Burn burner. Talk to you tomorrow.