We all know what happened this week:
Donald Trump’s decision on April 2 2025 to enact sweeping “reciprocal” tariffs on US trade partners will go down as one of the greatest acts of self-harm in American economic history. They will wreak untold damage on households, businesses and financial markets across the world, upending a global economic order that America benefited from and helped to create.
We also know it was based on highly questionable math:
His “reciprocal” levies amount to a back-of-the-envelope calculation. They take trade partners’ US trade deficit in goods as a share of imports from that country, and then divide it by two. This is not a calibrated attempt to equalise tariff and non-tariff barriers facing US exporters, perceived or otherwise. It is, however, a reckless repudiation of all trade agreements the US has signed, as well as a deeply flawed plan to attract foreign manufacturing investment.
So what happens next?
Assuming this behavior persists, the US will continue to isolate itself from global trade, and the rest of the world will pivot and quickly move to trade more freely among themselves. This maybe isn't as problematic as some might think. Today, the US represents about 13.5% of global goods imports, which is down from almost 20% in 2000. And the biggest drivers of global growth are now China and the Euro area.
To that end, here's a fascinating study from IMD Business School that looked at how long it will take for various trading partners to completely wean themselves off of the US. And to do this, they looked at non-US import growth for the 10-year period from 2012 to 2022, and then extrapolated. This is what they learned:
What this chart says is that by the end of this year, some 70 US trading partners could, in theory, replace the loss of the US export market so long as non-US growth continues as it did in the past. And by 2039, the number jumps to over 140 trading parties. 2039 is obviously a long ways away, but I think it's noteworthy that year one in this specific chart already starts with 70.
Importantly, Canada does not fall within this initial bucket. Based on the study, we are in the danger zone. That is, exports to the US make up more than 10% of our GDP and it will take more than 10 years for full export recovery. But again, this is based on historic non-US growth. So all this means is that the status quo cannot continue; we need to dramatically increase this growth rate and do it as quickly as possible.
I hope our leaders recognize the urgency of this, because nothing can be taken for granted when it comes to the US right now. We need to be hyper focused on full trade recovery as soon as possible. Canada needs to be open for business to the world.
Look, I get it.
The Raptors had plateaued. When the Cavaliers swept them in the playoffs earlier this year we all knew there were going to be significant changes in the off-season. Many people who know more about basketball than I do also seem to believe that sending our franchise player DeMar DeRozan to San Antonio in exchange for Kawhi Leonard is a win for us. The betting odds also seem to reflect this win.
But, like many people here in Toronto, the first emotion I felt this morning when I heard the news was sadness. Here is a guy who has played his entire professional career in Toronto (9 years) and has openly and continually expressed his loyalty to this city. He wanted to retire a Toronto Raptor. He declared himself to be Toronto.
Of course in the end this is a business. And the primary goal of this business to win championships. If you don’t think you’re in a position to win championships – or lose to the Golden State Warriors in the finals, which is probably the most that teams can hope for right now – then it behooves you to make the necessary changes, however painful they may be.
I have no idea how this all went down, but the Instagram story that DeRozan posted this morning makes it abundantly clear that he feels betrayed. He feels he was told one thing, and that one thing isn’t what ended up happening. That’s the truly sad part for me. But I’m not going to speculate. Instead, I would like to thank DeMar DeRozan for his dedication and loyalty to this city. He was one of Toronto’s finest city builders.