What smart people are saying about Trump’s escalating trade war with Canada

Paul Krugmanthe Nobel laureate economist and former New York Times columnist wrote in a Substack post on Monday that he still has to “rub my eyes at the idea of ​​Canada as an enemy.” He called Trump a “bully.”

Krugman said Canada enters the battle at a clear disadvantage: The U.S. economy is roughly 12 times larger and the U.S. buys about three-quarters of Canada’s exports. Still, he argued that a trade war could seriously hurt the U.S., which relies on some imports from Canada.

He pointed to specialized Canadian timber, heavy crude oil used by refineries in the Midwest, and hydropower that is a major part of electricity supply in New York and New England. He also said disrupting cross-border trade in cars and car parts would be “hugely disruptive” to the industry on both sides of the border.

“The bottom line is that Trump will lose his trade war with Canada as thoroughly as he lost his going to war with Iran” he wrote.

Trevor Tombe, an economist at the University of Calgarywrote that the new tariffs are unlikely to have a huge, immediate impact on Canada’s national economy.

He estimated that the new import plan would increase the average tariff on Canadian exports by about 2.5 percentage points and shave a few tenths of a point off GDP growth.

That doesn’t mean the effects will be felt evenly, he argued.

Tombe wrote that the tariffs could put about 87,000 Canadian jobs at risk if they remain in place, and that the affected sales are in line with the 50% tariffs.

And some of those jobs would be in places that aren’t directly targeted: He estimated Alberta could lose about 9,000 jobs, even though relatively few of the province’s exports are directly affected.

David Whiston, an auto analyst at Morningstar, said the largest assembly exposure for Ford and GM is in pickup trucks. That’s the most profitable part of any car company’s U.S. operations.

GM is building a few Chevrolet Silverados in Canadahe said, adding that Ford will bring 100,000 units of annual Super Duty pickup capacity online at the Oakville plant in the fourth quarter.

“The calculations on that have just gotten worse for them,” Whiston told Business Insider.

In an interview on CNBCMichael Froman, president of the Council on Foreign Relations and a former U.S. trade representative, said the 50% tariff package that came into effect this weekend affects only about 5% of Canadian exports to the U.S.

“It’s significant in terms of what it says about the state of the relationship right now,” he said. “But economically it doesn’t make much sense.”

Froman said the average tariff applied to Canadian goods has risen to about 6%, from about 1% at the start of Trump’s second term — although it is still below the tariffs faced by imports from China.

The bigger risk, he said, is to the USMCA.

“The U.S. is engaged in a series of negotiations with Mexico, but not really engaged with Canada yet,” he said.

Peter Schiff, a stockbroker and frequent Trump critic, wrote on X that the tariffs would hit American consumers, not just Canadian producers.

“Americans buy many of those goods from Canada, and those goods will now be much more expensive for Americans to buy,” he wrote, adding that the plan would worsen “the government-induced cost-of-living crisis.”

Kelly Ann Shaw, a partner at Akin and a former deputy assistant to the president for international economics during Trump’s first term, said she sees no immediate resolution to the dispute.

During an interview on CNBCShaw said Carney’s Saturday speech, in which he promised dollar-for-dollar retaliation, came across as a “victory lap” to people in the Trump administration.

“There is a lot of frustration and bitter feelings on the American side,” she said. “I don’t see an exit anytime soon. I think Canada will continue to be in the wilderness from an American negotiating perspective for a while.”

Frances Donald, the chief economist at the Royal Bank of Canada, said the latest tariff only covers about 5% of Canada’s trade with the U.S., while more than 80% of exports are still duty-free, so it is unlikely to be enough on its own to derail Canadian growth.

Still, some products will be hit hard, she said.

“The plastic products, electrical machinery, furniture and wood products sectors are among those most affected by the new measures,” she wrote in a note on Saturday. “Because the tariff is so high and only applies to Canada, purchasing these products from Canada would be prohibitively expensive.”

She added that renewed trade uncertainty increases the likelihood that the Bank of Canada will not raise rates this year.

Beichen Lin, head of Canadian strategy at Russell Investments, said the broader new tariffs affect only about 5% of Canadian exports to the U.S.

He added that the U.S. economic impact should be relatively muted, while Canada faces greater uncertainty for an economy already under pressure.

“Investors would benefit from remaining disciplined and maintaining a long-term focus, while taking advantage of any tactical opportunities that may arise from market overreactions,” he wrote in a research note on Monday.

In a statement on Saturday, Jennifer Safavian, who heads Autos Drive America, a group representing international automakers operating in the U.S., said Trump’s tariff policies are already hurting the U.S. auto industry.

She added that U.S. auto exports to Canada have fallen 23% in the past year.

“The continued success of the U.S. auto industry depends on strong and stable partnerships across North America. We urge all parties to continue negotiations to finalize an interim agreement,” she wrote.

Canada’s planned “dollar for dollar” retaliation on September 8 creates a new deadline for the two countries to reach an agreement and possibly de-escalate, David Doyle, chief economics officer at Macquarie Group, wrote in a note on Sunday.

However, if Canada follows through, it risks “another escalation from the U.S.,” possibly through additional tariffs, he added.

Economic exposure is heavily focused on Canada.

The goods affected by the latest U.S. tariffs are worth about 0.8% of Canada’s GDP, while the tariffs are about 0.4% of GDP. For the US, the tariffs are only 0.03% of GDP.

Canada should prioritize maintaining access to the U.S. market rather than escalating the trade dispute, James Thorne, chief market strategist at Wellington-Altus Private Wealth, wrote on X on Sunday.

“Broad retaliation is not a strategy,” Thorne wrote, arguing that tariffs would raise costs for Canadian households and manufacturers without addressing the country’s underlying productivity and competitiveness challenges.

He said Canada should instead focus on reforms, including deregulation, faster project approvals and fewer barriers to capital and internal trade.

Thorne also argued that deeper trade ties with China cannot replace Canada’s highly integrated economic relationship with the neighboring US.