President of the United States Donald TrumpPrice threats will not disappear.
Before and after his entry into office during his second term, Trump threatened to impose general customs duties of 25 % on all goods entering the United States from Canada and Mexico.in addition to target Chinese exports.
He gave various reasons to justify trade attacks against other countries, ranging from the assertion that they would finance massive tax reductions in the United States until the North American borders.
But what exactly is customs duties, this commercial tool that Trump described as “the most beautiful word … of the dictionary”?
Here is what you need to know about how customs tariffs work, their impact on the economies and the reasons why governments use them.
A price is a tax imposed on goods or services from another country.
For example, the United States has already imposed taxes on softwood, Canadian steel and aluminum, which could be materials used by a manufacturer of American furniture or manufacturers.
Meanwhile, if this furniture manufacturer wanted to import Canadian lumber, he should pay a price – partly expressed in the sale price of a product, such as 10 or 25 percent, or in the form of fixed costs – to introduce it into the market. the country.
If an imported product was estimated at 100 dollars at the point of sale and was subject to a customs right of 25 percent when it entered the country, it would then cost the buyer $ 125, the additional 25 dollars returning to the government.
This makes the import of the pricken article more expensive for the company. They could choose to integrate the higher cost of this intake priced in the final price of the product they sell, or they could find alternatives to avoid importing the article in the first place.
By launching his latest series of customs tariffs, Trump is committed to creating an external revenue service to collect the product of the tax.
“Instead of taxing our citizens to enrich other countries, we will impose prices and taxes on foreign countries to enrich our citizens,” he said during his inauguration speech on January 20.
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But it is the companies that import taxed products that pay the tax, and they pay it directly to their own government which has imposed customs duties.
Mahmood Nanji, political researcher at the Ivey School of Business of Western University, told Global News that some companies can negotiate agreements with suppliers so that the final price of a product is taken into account in the cost of rights associated with export.
But he says that it is the importer – the company within the country that applies the prices – which generally pays the cost of customs duties.
“Even if customs duties are perceived by the government which imposes them, they are not paid by one government to another,” said The Canada Export and Development Website.
What do the prices do for a government?
Nanji says there are several reasons why Trump, or any government, might want to impose a price.
The first is to increase income. The product of a price can be used to strengthen the chests of a government, or to finance new services or tax discounts.
Trump has promised significant tax reductions during the 2024 campaign and said that he would use customs duties to finance them.
Customs prices can also protect a national industry from external competitors.
If an American company cannot obtain a ludsman with a Canadian supplier due to higher customs tariffs, it can turn to another American company – if it can – for a similar product, stimulating Thus the national economy.
Finally, customs duties can be used as a negotiation tactic to obtain other concessions from a trading partner.
Trump, for example, expressed his concerns about the fentanyl flow crossing the northern border and criticized Canada’s inability to comply with NATO spending commitments.
Canada, the United States and Mexico should also renegotiate the ACEUM trade agreement in 2026, Nanji highlighting customs duties as a first salvo in these new trade negotiations.
“I suspect that he uses customs duties as a lever to get better conditions,” he said.
Trump said the project The prices have “nothing to do” with the renegotiation of the aceum.
How does the economy react to customs tariffs?
Frances Donald and Nathen Janzen, RBC economists wrote a guide on the impact of customs tariffs on industries and consumers.
Before customs duties were actually applied, the fear of commercial restrictions could bring buyers of the country applying the prices to be supplied with products that would cost more before the deadline. This could actually lead to a temporary increase in commercial activity before the adoption of customs duties, write Donald and Janzen.
But once they are in place, the demand for priced products decreases because it costs importing companies more.
Some may continue to buy in the country subjected to prices if they can absorb higher prices, potentially by repercussions these costs on consumers, while others can try to find a supplier in their own country capable of providing the same products.
In the end, companies whose products are priced are likely to suffer a hard blow on their sales. In a vacuum, this harms the economy of the country faced with customs duties.
Economists warn that a tariff war between Canada and the United States would harm economies on both sides of the border and will probably lead to a recession north of the border. Job losses would be expected, especially in the sectors that depend most on the trade with the United States.
Donald and Janzen underline that some of the most vulnerable sectors are those with highly integrated supply chains, such as the automotive industry, where parts can cross the Canadian-American border on several occasions and can therefore be confronted with rights to Customs again and again.
Threats Customs prices have also weakened the Canadian dollar in recent monthsWhile investors invest money in the United States more.
The impact of customs tariffs can be attenuated by budget recovery measures on the part of the country concerned, which can react in kind by retaliatory prices.
What is a dollar price for dollar?
Retractive prices would apply the same situation described above, but upside down.
In the Canadian-American case, Canadian companies would pay rights to the goods concerned imported north of the border, the government would benefit from an increase in revenues and consumers could end up paying more.
Prime Minister Justin Trudeau said that “dollar equivalent prices” were part of the options On the table to react if the United States imposes customs duties as it threatens.
Nanji says that the “dollar for dollar” aspects of retaliatory prices can be difficult to quantify, depending on the way in which the initial rates are implemented.
But, for example, if the United States imposed customs tariffs of a value of up to 100 billion dollars on Canadian products in a given time, Canada would react in the same way by imposing prices on the American goods or services who would also seek to generate $ 100 billion.
The Canadian economy represents almost a tenth of the size of that of the United States, which leads to a disproportionate impact in the case of dollar customs tariffs.
One of Trump’s other criticisms of trade relations between Canada and the United States is that Canada has a trade surplus with the United States. This means that Canada exports more goods and services to the United States over a given period than it does.
Trump said it was to “subsidize” Canada by the United States, but Nanji says it’s not the same.
Given the relative size of the Canadian economy and the “insatiable appetite” of the United States for Canadian natural resources, a trade surplus is almost inevitable, he explains.
However, if Canadian energy was withdrawn from the equation, the United States would already have a trade surplus with Canada and already have one in terms of services, says Nanji.
“When we think of a subsidy, it is generally the transfer of funds from one government to another. There is no 100 or 200 billion dollars check that the US government sends to Ottawa each year, “he said.
“Whoever tries to assimilate it actually tries to assimilate something that is a false equivalence.”