” US Stocks Rattled Anew as Trump Ramps Up Trade War With Canada,” reports Bloomberg News. Yesterday, the stock market fell by about 2%, continuing a three-week decline for stocks. This morning, stocks rose, but then fell back down after Donald Trump announced he would impose new tariffs on America’s longtime ally, Canada, raising the tariff to 50% on aluminum and steel from Canada:
US stocks buckled again after Donald Trump’s latest trade-war salvo against Canada, as the S&P 500 fell … and megacap technology resumed a selloff that’s now reached three weeks.
The Nasdaq 100 erased a gain that reached 0.7%, adding to a rout that has left it more than 10% from its Feb. 19 record. The S&P 500 extended its drop from that day, falling 0.9% further…Selling was broad, with almost 400 S&P stocks lower. Energy, materials and industrials shares bore the brunt of selling on the headlines that Trump was ramping up tariffs on metals from Canada.
Trump said he was increasing the steel and aluminum tariff on Canadian goods to 50% to retaliate against Ontario’s move to place a levy on electricity imported from the US. The levies are expected to take effect Wednesday. Trump said he would also “substantially increase” other tariffs on Canada on April 2 if the country does not drop tariffs on dairy products and other US goods.
“Trump says Canada can avoid the tariffs by becoming a part of the USA,” which enrages Canadians, who overwhelmingly do not want to become part of the United States. Every time Trump encourages Canadians to become part of the U.S., it angers Canadians, and increases support for the Canadian Liberal Party at the expense of the Canadian Conservative Party. The Conservatives had been heavily favored to win the Canadian 2025 election, but now, they may lose.
Trump’s tariffs on Canada make no sense. In imposing tariffs on Mexico and Canada, Trump complains about fentanyl supposedly coming from those countries. But it is the United States that sends fentanyl to Canada (where it fetches a higher price), not Canada that sends fentanyl to the United States. The United States does get a lot of fentanyl from Mexico, although most of that fentanyl is smuggled in by U.S. citizens, not Mexicans.
Imposing tariffs on Canadian aluminum and steel may make the U.S. more dependent on aluminum and steel from China, which is hostile to America in its foreign policy, unlike Canada, which is a NATO ally. As Stephen McIntyre explains:
It’s not long ago that US sought Canadian oil as a “secure” North American supply to protect US from dependence on Middle East. And not long before that when US sought Canadian metals (including aluminum) as a secure supply for national security. Canada is, by far, the largest exporter of raw materials to US manufacturing and is, by far, the largest importer of US manufactured goods. Some industries e.g. automotive are highly integrated. The trade between the two countries has traditionally been fairly closely balanced, though recently Canada has had a modest trade surplus due to increased crude oil exports to US. US has serious trade deficits in manufactured goods with China, Asia and even Europe. So what is with Trump’s fixation against Canada? The pretexts for Trump’s declaration of economic war against Canada keep varying, resulting in bewilderment in Canada. One day, it’s illegal immigration. Another day it’s fentanyl. Today it’s the dairy industry – a tiny element in the USMCA trade agreement negotiated during the previous Trump administration. Tomorrow, it will be something else. So how exactly do Americans expect Canadians to react to Trump’s threat of economic warfare against Canada?
Tariffs on aluminum and steel are stupid because they wipe out jobs in industries (like automaking) that rely on cheap imported aluminum and steel. Past tariffs on steel and aluminum “resulted in 75,000 fewer manufacturing jobs in firms where steel or aluminum are an input into production,” note two economics professors, by subjecting those firms to “increased costs of inputs” that made their products less competitive. That is far more than the paltry number of jobs gained in the U.S. steel industry due to tariffs on steel (“roughly 1,000 jobs”).
Also, if America tries to produce all of its own aluminum, rather than importing Canadian aluminum, that will put a big strain on its power grid. As Cato Institute economist Scott Lincicome explains, “On shoring all Canadian aluminum would require ‘over 40 million megawatt-hours of electricity. This is nearly four and a half times the annual electricity production of the Hoover Dam, enough to power 460 data centers or the entire state of Nevada for a year.'”
That’s because U.S. industries rely on imported components and raw materials from Canada and Mexico to manufacture things like cars. So tariffs can harm American manufacturers and wipe out U.S. manufacturing jobs, notes The Journal:
Take the U.S. auto industry, which is really a North American industry because supply chains in the three countries are highly integrated. In 2024 Canada supplied almost 13% of U.S. imports of auto parts and Mexico nearly 42%. Industry experts say a vehicle made on the continent goes back and forth across borders a half dozen times or more, as companies source components and add value in the most cost-effective ways.
And everyone benefits. The office of the U.S. Trade Representative says that in 2023 the industry added more than $809 billion to the U.S. economy, or about 11.2% of total U.S. manufacturing output, supporting “9.7 million direct and indirect U.S. jobs.” In 2022 the U.S. exported $75.4 billion in vehicles and parts to Canada and Mexico. That number jumped 14% in 2023 to $86.2 billion, according to the American Automotive Policy Council.
American car makers would be much less competitive without this trade. Regional integration is now an industry-wide manufacturing strategy—also employed in Japan, Korea and Europe—aimed at using a variety of high-skilled and low-cost labor markets to source components, software and assembly.
The result has been that U.S. industrial capacity in autos has grown alongside an increase in imported motor vehicles, engines and parts. From 1995-2019, imports of autos, engines and parts rose 169% while U.S. industrial capacity in autos, engines and parts rose 71%….Thousands of good-paying auto jobs in Texas, Ohio, Illinois and Michigan owe their competitiveness to this ecosystem, relying heavily on suppliers in Mexico and Canada….
Tariffs don’t cause economic growth. Newt Gingrich says Trump’s “McKinley Model” requires high tariffs over a three-year transition period. But “three years after the 1890 McKinley tariff, the economy had fallen into a severe depression. The GDP shrank by 10% and unemployment hit 18%. Certainly not the economic model I’d be copying,” says economist Jessica Riedl of the Manhattan Institute.
Tariffs result in higher prices for the products affected by them, which is unpopular with consumers. In 1890, a Republican Congress passed the McKinley Tariff, which raised import duties. It was so unpopular with the public that Republicans were decimated in the next election by angry voters. As Wikipedia explains, the McKinley Tariff devastated the Republican Party, costing nearly half of all Republican House members their seats:
The Tariff Act of 1890, commonly called the McKinley Tariff, was an act of the United States Congress, framed by then Representative William McKinley, that became law on October 1, 1890. The tariff raised the average duty on imports to almost 50%, an increase designed to protect domestic industries and workers from foreign competition, as promised in the Republican platform. It represented protectionism, a policy supported by Republicans and denounced by Democrats. It was a major topic of fierce debate in the 1890 Congressional elections, which gave a Democratic landslide. Democrats replaced the McKinley Tariff with the Wilson–Gorman Tariff Act in 1894, which lowered tariff rates…..
The [McKinley] tariff was not well received by Americans who suffered a steep increase in prices. In the 1890 election, Republicans lost their majority in the House with the number of seats they won reduced by nearly half, from 171 to 88. In the 1892 presidential election, [Republican President Benjamin] Harrison was soundly defeated by Grover Cleveland, and the Senate, House, and Presidency were all under Democratic control. Lawmakers immediately started drafting new tariff legislation, and in 1894, the Wilson-Gorman Tariff passed, which lowered US tariff averages.
