Donald Trump is not yet the sitting president of the United States, but people across the planet would hardly realize that based solely on international news. Since winning a second term in the White House, Trump has hosted world leaders from Italy to Argentina, as well as billionaires Mark Zuckerberg and Jeff Bezos, as global kings and kingmakers make haste in bending the knee to the former and future president.
Without even ascending to office, Trump has already scored his first scalp. Barely a month after Justin Trudeau made his pilgrimage to Mar-a-Lago, Canada’s prime minister announced he was resigning after nearly a decade of power.
Economists across the right side of the aisle have debated endlessly over the fiscal merits of Trump’s expansive tariff proposals, with classical economists correctly arguing that tariffs harm economic growth while protectionists point out that apoplexy over possible inflationary consequences is wildly overstated. But the terror over tariffs largely misses the more salient point that their purpose, at least for Trump, is likely not some autarkic economic endgame but rather to function as a blunt but mighty diplomatic weapon.
Consider what preceded Trudeau’s precipitous fall from favor within his party: While the Labour Party has faced the same vitriolic backlash as the rest of the world’s incumbent parties in the wake of inflationary and illegal immigration crises, Trudeau’s peril didn’t approach panic mode until Trump announced he would impose a 25% tariff on all imports from Mexico and Canada to “remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!”
To be clear, letting such a tariff go into effect, an open question without unlikely congressional authorization, against our two top trade partners would absolutely threaten not just the U.S. gross domestic product but also the 12 million American jobs supported by trade with our northern and southern neighbors. As an economic endgame, this would be a terrible policy and, in the long run, would massively undermine the West’s efforts to friendshore trade away from China and its authoritarian allies.
But such tariffs would wound Canada and Mexico by orders of magnitude more than they would harm the U.S. A full 80% of exports from Canada and Mexico go to the U.S., with our consumers contributing 20% of Canada’s GDP and some 30% of Mexico’s. Trump is correctly bluffing that neither nation can afford not to respond to his threat, and the subsequent fallout of his threat proved him correct.
Although Trudeau publicly postured submission to Trump’s tariff threat, he sparked outrage among his party by pushing holiday checks to households earning less than $150,000 instead of quantifying an increase in border security. Chrystia Freeland, Trudeau’s deputy and minister in finance, resigned in response, beckoning Trudeau to “take that threat extremely seriously” and keep his “fiscal powder dry.”
While Trudeau tried to unveil an extra billion in border security after Freeland’s resignation, it proved too little, too late. Conservative Party leader Pierre Poilievre is the outstanding favorite to win the nation’s premiership during the federal election later this year, but in the meantime, Labour will likely replace Trudeau with a liberal who at least pretends to take the border crisis more seriously than Trudeau, who oversaw the number of illegal migrants who crossed into the U.S. from Canada nearly double from 2022 to 2024.
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As an economic end goal, tariffs are a suboptimal policy. While consumption taxes of all kinds, including tariffs and value-added taxes, are obviously superior to income taxation, as one punishes wealth creation while the other rewards saving and investment, tariffs inhibit economic growth, raise domestic prices, and usually do so to prop up employment that would be better off evolving in the long run anyway.
But as a diplomatic threat, tariffs are powerful, and the fact that Trump has already displaced the last remaining G7 leader who preceded his first presidency is the evidence to prove it.