Trumps' tariffs are supposed to take effect today. Here's a quote from the Globe and Mail, published yesterday:

“Very importantly, tomorrow, tariffs, 25 per cent on Canada and 25 per cent on Mexico, and that will start. So, they’re gonna have to have a tariff,” Mr. Trump said.

But it's still not clear that he understands how these tariffs will work. Either that, or he's lying and trying to trick people. Because he continues to deny that tariffs represent a tax paid by US importers (and ultimately US consumers) on things coming from Canada and Mexico.

Here's another quote:

"It’s not going to be a cost to you [Americans], it’s going to be a cost to another country."

Yeah, that's not how they work:

When the US puts a tariff on an imported good, the cost of the tariff usually comes directly out of the bank account of an American buyer.

“It’s fair to call a tariff a tax because that’s exactly what it is,” said Erica York, a senior economist at the right-leaning Tax Foundation.

“There’s no way around it. It is a tax on people who buy things from foreign businesses,” she added.

In any event, in the real world, tariffs are bad. They're bad for everyone. So much so, that Warren Buffett recently described them in this way:

“Tariffs are actually, we’ve had a lot of experience with them. They’re an act of war, to some degree,” said Buffett, whose conglomerate Berkshire Hathaway has large businesses in insurance, railroads, manufacturing, energy and retail. He made the remarks in an interview with CBS News’ Norah O’Donnell for a new documentary on the late publisher of The Washington Post, Katharine Graham. “Over time, they are a tax on goods. I mean, the tooth fairy doesn’t pay ’em!” Buffett said with a laugh. “And then what? You always have to ask that question in economics. You always say, ‘And then what?’”

So let's look at "and then what" when it comes to the automotive sector.

The auto sector is the largest component of trade across Canada, the US, and Mexico. It makes up 22% of all the goods and services the flow across our borders. And in 2023, we produced some 16 million cars together, which generally include parts and materials from all three countries. We're extremely integrated. The WSJ recently broke this down, over here, and if you look at something like pistons, you'll see that this component alone typically crosses a border about 6 times:

What this means is that if you start forcing US importers to pay a tariff on Canadian and Mexican goods, and then Canada and Mexico retaliate with the same (because we/they have to), the entire model breaks down, unless of course consumers are comfortable paying a lot more. Of course, most of you already knew this. Last year, $1.6 trillion worth of goods moved back and forth across the US, Canada, and Mexico. It would be better for all three of us if this number went up, and not down, this year.

Cover photo by CHUTTERSNAP on Unsplash