Trump's need for money makes trade negotiations difficult: former BoC deputy governor

United States

latest wave of tariffs

can be formulated as a way

protect American jobs

and industry, but one of Canada's leading economists says they also serve a quieter and more important purpose:

collecting money

Paul Baudry, former deputy governor

Bank of Canada

says Washington's tariff strategy as part of

Donald Trump

intends to do two things: tell Americans he cares about their jobs and raise hundreds of millions to pay for tax cuts.

“Yes, tariffs are aimed at generating revenue,” he said. “It's sort of a dual strategy – we'll get it on one side or the other. If we don't divert most of the trade, we'll get all that income. If we divert most of the trade, we'll get fewer imports, but maybe more jobs. That's the combination they have in mind.”

Beaudry said tariffs are essentially

import tax

making them one of the few politically viable ways for the US government to raise new revenue without calling it a tax increase.

“In budget negotiations in the United States, it's really hard to find a place to tax. If you were discussing any other tax, you would immediately get into an impasse,” he said. “This is a case where they present it not as a tax, but as a tax on imports. And it is one of the few that can generate revenue while maintaining support from its base.”

The problem is what is being created

ongoing tensions with Canada

and other countries are trying to negotiate new trade agreements with the United States, but the Trump administration is seeking to maintain tariffs on many goods for their potential revenue.

“I think this will make it difficult to negotiate in the future,” Beaudry said, pointing to

US tariff measures

which include tariffs of up to 10 percent on goods from the United Kingdom and up to 15 percent on certain imports from the European Union.

A 10 percent across-the-board tariff would generate $2 trillion and a 20 percent across-the-board tariff would generate $3.3 trillion between 2025 and 2034, according to the Tax Foundation, a nonprofit think tank in Washington, D.C., that researches tax policy in the U.S. and abroad.

On the other hand, the organization estimates that the corresponding 10 percent and 20 percent levies would increase taxes on American households by an average of $1,253 and $2,045, respectively.

Beaudry said U.S. companies, rather than foreign exporters, bear most of the tariffs now.

“It looks like most items are selling at the same price as before,” he said. “That means someone in the US is paying the tariff – firms are absorbing it into their profits rather than passing it directly on to consumers. They're doing it slowly because they don't want to get on Trump's bad side.”

Beaudry expects some new manufacturing jobs, especially in the auto sector, but doubts the tariffs will lead to large-scale job creation.

“(Trump) will get some jobs and a lot of publicity about this,” he said. “But mostly he will get the income.”

Looking to the future, Beaudry said he expects some tariffs – especially extreme ones such as the proposed 100 percent tax on Chinese goods – to eventually be reduced. But he also expects others, especially on vehicles from Canadian and other foreign manufacturers, to last a long time.

“I would be very scared to work in the auto industry,” he said. “This is one area where (Trump) wants to see more U.S. manufacturing and can keep tariffs in place for a long time.”

Just last week, Stellantis NV announced plans to move production of the Jeep Compass from its Brampton, Ontario assembly plant to Illinois. The move is part of a larger $13 billion investment in the company's US operations.

Beaudry compared Canada's dependence on global trade (about 40 percent of the economy) with the much smaller dependence of the United States (about 15 percent). That difference, he said, helps explain why Washington can afford to use tariffs as a political and financial tool without causing the same level of economic disruption as in other countries.

“The US just doesn't rely as much on international trade,” he said. “To them, tariffs like this don’t impact the entire economy the way they would impact us in Canada.”

Beaudry said Canada should prepare for a tougher trading environment and the possibility that small but persistent tariffs — perhaps five to 10 percent — become the new norm.

“I wouldn’t be surprised if the lower tariff remains overall,” he said. “It is for the sake of income; and the idea that they want to receive tariff revenues from all the countries of the world.”

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