A few days ago economist Paul Krugman (2025) asked tariff and trade expert Mary Lovely for her take on the Trump administration’s recent actions. Her responses in a question-and-answer interview were eye opening.
One of the most important impacts of Trump’s on-again, off-again tariffs against Canada and Mexico is that it results in uncertainty for businesses, argued Lovely, who is associated with a think tank called the Peterson Institute for International Economics. A major goal of the trade agreement Trump previously brokered with the above two countries was to allow business-investment decisions to be made with the confidence that the rug wouldn’t get pulled out from under them.
“And of course, President Trump blew a hole in that, like, right away,” stated Lovely. “So, well, maybe now the certainty that the U.S. will not adhere to its trade treaties, I think has certainly left a lot of producers wondering where they can go that’s safe to serve the U.S. market.”
Lovely added that even if automobiles end up being exempted from the tariffs that there would still be “an enormous amount of trade in auto parts.” This is particularly the case between the U.S. and Canada. “There are vehicle models that have to pass back and forth across the border seven or eight times before they’re finished,” she said.
Latest exemptions add to business uncertainty
The backlash against Trump’s announcement of the Canada and Mexico tariffs was so intense that the administration backtracked by exempting trade for one month that meets the content-of-origin rules of the current multilateral agreement.
One problem with that is the lack of clarity about what the exemption applies to, according to Lovely. “It’s horribly confusing for the auto industry because they don’t know if this just means them, if it means their suppliers,” she said. “We also hear there’s a lot of pressure on the OEMs, original equipment manufacturers, that usually co-locate around production plants to move into the United States to invest in the United States and that they may be given up to a month. Now, anybody who thinks about this will realize that there’s no moving a plant in one month.”
If the administration’s goal is the reindustrialization of the U.S., Lovely argued that its approach shows a misunderstanding of “how supply chains have changed since the 1970s and how we might go about it in a way that doesn’t actually create asset destruction and that the U.S. might be able to actually benefit from.”
Also see ‘Why are auto industry and media so surprised by Trump’s tariffs?’
Lovely and Krugman cover a lot more about tariffs that is worth reading in full (go here). If you mainly know Krugman from his political commentaries in The New York Times, note that he has had a day job as a scholar and in 2008 won a Nobel Prize in economic science for his research on trade theory (Wikipedia, 2025).
Share your reactions to this post with a comment below or a note to the editor.
RE:SOURCES
- Krugman, Paul; 2025. “Tariffs! Tariffs! Tariffs! In Conversation With Mary Lovely.” Paul Krugman. Posted March 8.
- Wikipedia; 2025. “Paul Krugman.” Page last edited March 2.
- WSP; 2025. “Peace Arch Historical State Park.” Washington State Parks. Accessed March 8.
Trade expert says Trump’s on-and-off tariffs create business uncertainty
Homer Simpson could figure that out.
If that’s such an obvious point then why is the most powerful nation on earth failing to understand it?
Trade wars and tariffs are never pretty. However, they are not new to the Automotive industry. Supply chains in the automotive industry have becoming increasingly global. Countries around the globe have encouraged automotive industry expansion through trade policy. As the sun has set on the domestic big 3, numerous other manufacturers have set up shop in the USA helping to keep our automotive manufacturing sector going strong. Part of the reason they have done so is the sheer size of the US auto market, but tariff and trade policy factors into the equation as well.
Automakers as profit seeking organizations, have sought to lower production costs by outsourcing low value parts making for decades. Sometimes it works (Prestolite, Borg Warner, Lucas, Bendix, etc) and sometimes it doesn’t (Takada air bags), but it’s here to stay. How much of the tariff impact will be absorbed versus passed along to consumers? Likely most of it.
The industry has evolved from a time when Henry Ford wanted to control his entire supply chain to what it is today; a highly integrated, globally sourced vehicle design and assembly operation – not pure play manufacturing any longer. Today’s automotive manufacturing operators must be cost cutting and supply chain geniuses to not only thrive in, but to survive in a brutal market.
On a historical basis, Canada has been the 51st state for over 150 years!
For example: How many Canadians fought in the American Civil War? The answer is over 50,000! (Two reasons – the impact of Harriet Beecher Stowe’s “Uncle Tom’s Cabin” novel, and secondly, the fact that Americans with money could, for $300, swap an alternate “stand in” for their family member’s service in the Civil War. Because that sum would go a long way to a better life and/or buying a farm, many young men from north of the border were willing to chance it. There were many North and South “recruiters” operating in Canada.)
Where did Jefferson Davis and his family go (for months) to be with friends immediately after he was released from custody? Answer: Canada. (See next paragraph.)
Who did John Wilkes Booth confer with shortly before the actor “performed” the Lincoln assassination? Answer: A Confederate “cell” operating in Montreal. (There were several cells in several Canadian cities – like Toronto and St Catharines). As well, there were quite a few higher level and “well-heeled” southern sympathisers in Canada, and they delighted in making the Jeff Davis family feel very welcome and supporting them).
Then there was a little “trouble”! Canada was formed in 1867, shortly after the American Civil War, in part because of fear coming from the United States. Thanks to the war, America then had a population of tens of thousands of Irish immigrants, now trained and seasoned soldiers, who absolutely HATED England and anything English!
Just to the north of the border was a lot of pretty lightly defended English territory. Hmmmm. Since officials of the American government had said aloud, not long before, that Canada could be taken “by mere marching”, Irish militants of course thought to follow up on that idea, by getting their compatriots together and march! At first, the American government (who knew of the idea) was a little lax in trying to stop them (it was against a statute of US law for the planned Irish sympatizers -“Fenians” – to attack “Canada”), but they finally did take steps to do so. However, the Fenians did manage to mount three or four attacks and occupy a little territory for a couple of days. The result was that some real fear was thrown into the various governments (and populace) north of the border. It was then a little easier to bring the founding provinces together to make a Canadian nation.
Canada and the USA have had an infinite number of friendly/consequential interactions going back over really two centuries and many, many generations, not just the “since WWII” references cited on TV.
No “revelation” is it that Canada and the USA are very, very, interwoven. Canada seems under a sudden and “chaotic” economic attack from an American government. Canada and the USA have been solid partners and friends for decades of mutual prosperity – and we treated each other as friends. Any necessary negotiations were generally done with mutual respect. Canada is having trouble with the threats and lack of respect now being shown by the US government – and because of those tactics, it will have to deal with backlash and heightened Canadian patriotism – and the economic fallout which will most likely hurt citizens on both sides of the border who just want to make a living for their kids and have a decent life.
Historically, Canada and the US have each been a part of the other and in more ways than we can contemplate. Trump’s methods are incomprehensible to Canada and are undermining a unique, only-one-in-the-world relationship.
Canada has NEVER been and NEVER will be the 51st state. It is utterly rude and ignorant to say this. Our sovereignty is being threatened by the lunatic your country chose to be president. We are not merely “ticked”, we are enraged. This is not a trade war. It is about your country threatening my country. The ‘friendship’ between Canada and america has been destroyed. We can never trust your nation again.
You have hit on an even larger and long term problem. Does any agreement made with the US mean anything since it is now shown that they can be broken by who may be the president at any given time. Can the US be trusted in what they agree to, what they promiose, what they say? NO! Can Congress be counted on to reign in an adminstration as they break commitments? Never!
In just 2 months the US international reputation has flatlined. How many years, or is it measured in decades,will it be before the US regains international credibility, if ever.
l know my paragraphs above are not worded perfectly. l’d like to change it some. But l wanted to say that Canadians are ticked at Trump and his economic attack is largely fabricated (no one should be surprised at that). Canada is abiding by the USMCA agreement signed by Trump in 2018 – which is not scheduled to be reviewed until next year. But he is ignoring the fact that HE signed the agreement and hailed it as a great thing for the US. Now he’s blaming Canada for “ripping off” America under its terms!
Some good will come of this – Canada will increase its defence spending, do more to find diversified markets for its goods and services (rather than putting all
its eggs in the USA basket), and defend the Arctic more effectively.
l hope that Premier Ford will NOT impose any electricity measures on the US today. It would show Trump that Canada is serious about not wanting to be bullied, but also negatively affect average American citizens who have little to do with this. That’s not right in my book.
By the way, of the 50,000 Canadians who fought in the US Civil War, the vast, VAST majority fought on the side of the North. Did Canadians die at Antietam and Gettysburg? Almost for sure. Do Americans and Canadians need to come together – with Mexico – to create a strong and prosperous North America? Absolutely for sure. But the methods that may work for a Manhattan real estate deal just makes Canadian “dig in”. Trump, STOP IT!
Business uncertainty, stock market downturns AND retaliatory tariffs are three of the ingredients needed to make a recession, if not a Depression, begin and hang around for years. The Smoot-Hawley Tariff Act of 1930 lowered our exports and imports in the mid 1930s by 60% in 1933 and kept the Depression going until war production finally bought employment numbers back to a healthy number.
Since the current maladministration is run by the whim of the moment and whomever talked to Trump last, things won’t be consistent and consumers will have less to spend as they are whipsawed by stagflation and job losses. I’m thinking Great Depression Two: Electric Boogaloo is on the way. If that happens, only GM and (maybe) Ford might survive. We will lose Stellantis, Nissan and (because of their niche status and lesser presence here) Mazda. VW will suffer and maybe wither on the vine (80% of their exports come to the USA).
Hang on tight folks, maybe 2030 will be better.
I would agree that the economy is starting to look unusually volatile due to decisions by the new administration. That said, I personally would be hesitant to make hard-and-fast predictions about where this is going. There are just too many variables. For example, Trump may have very strong views about tariffs, deportations and federal budget cutting, but he has also shown some ability to bob and weave. So one of the questions I have is where does the ideological Trump leave off and the pragmatic Trump kick in?
Trump and he friends must have slept through any Economics classes, if they ever went to any.
They all missed the concept economic efficiency. One should not be proving up the inefficient and unable to be competitive. This is nothing more than distorting the marketplace and how investment decisions are made.
Having been in various 3rd world places it is interesting to understand what happens with tariffs. The inefficient/uncompetitive build up monopolies as they are dealing with protected markets. The local markets pay too much and the local producers get political clout so they remain protected.
To me the question is why have not already filed WTO complaints against the US for suspending agreed upon trade agreements. And, our Congress is doing nothing as they are being sidelined despite having approved the current agreement. A bunch of actors that need to grow a pair.
The federal government has (or at least had) lots of very smart economists working for it. So the problem shouldn’t be a lack of information — it’s that the deciders happen to have some strong views about tariffs. So I guess that we are all going to experience once again why mercantilism has serious limitations in the 21st Century.
I am certain there are a long list of government economists that understand. Too bad the decision makers dealing with this topic won’t/don’t listen to these people because it conflicts with their ignorance.
I suggest reading this timeline of events to illustrate, clearly, the threat posed by to Canada by your farce of a leader…
https://www.facebook.com/share/p/156aT8jU6B/
Copied from the FB above:
Dec 3rd, 2024 – Trump remarks that he would split Canada into two states once annexed.
Dec 10th, 2024 – Trump posts that the majority of Canadians support annexation, despite public polling that only 13% of Canadians would consider the idea.
Dec 18th, 2024 – Trump again falsely states that the majority of Canadians support annexation and that one of his lapdogs, Wayne Gretzky, should have a leadership role in that new scenario.
Jan 7th, 2025 – At a press conference, Trump says that he would use economic force to destroy the Canadian economy to annex it.
Jan 14, 2025 – Trump again claims that most Canadians want to be American, despite new polls showing only 10% of us are open to the idea.
Jan 20th, 2025 – During his inaugural address, Trump says that the U.S. will ‘expand its territory’ during his second term.
Jan 23rd, 2025 – At the World Economic Forum, Trump says that Canada can avoid tariffs and economic collapse if it joins the US. He says this in front of representatives from most countries in the world.
Jan 24th, 2025 – Trump states publicly that Canada ‘will’ become a state.
Jan 31st, 2025 – Trump announces a 25% tariff on all Canadian imports to begin the next day.
Feb 2nd, 2025 – Trump refers to Canada as its ‘Cherished 51st state’ and that it should join the US to avoid tariffs.
Feb 3rd, 2025 – A one month delay is agreed upon. Trump, in a conversation with Trudeau states that he doesn’t think existing border treaties with Canada are valid, and need to be revised.
Feb 7th, 2025 – In a closed door meeting with his cabinet, Prime Minister Trudeau is recorded, without his knowledge, telling everyone that he believes very strongly that Trump is serious and that he stated his reason for annexation as Canadian resources.
Feb 9th, 2025 – In a Super Bowl pre-game interview, Trump says that he’s serious about his threats, calling it a ‘viable consideration for expanding US territory’.
Feb 10th, 2025 – Trump announces an additional 25% tariffs on steel and aluminum imports from Canada to come into effect March 12th.
Feb 24th, 2025 – Trump publicly remarks that whoever signed the USMCA agreement is an idiot. He was the one that signed it.
March 4th, 5th, and 6th 2025 – Tariffs come into effect. Canada retaliates with it’s own tariffs. Tariffs are again postponed until April 1st after a huge market backlash.
March 4th, 2025 – In an address to a joint session of congress, Trump states that the US will own Greenland ‘one way or the other’.
March 5th, 2025 – US Secretary of Commerce Howard Lutnick told Canadian finance minister Dominic LeBlanc that Trump “had come to realize that the relationship between the United States and Canada was governed by a slew of agreements and treaties that were easy to abandon.”
March 7th, 2025 – Unconfirmed Memorandum and maps leaked on twitter reveal Trump is allegedly planning to annex the entirety of the great lakes and Southern Ontario, home to 13,491,332 Canadians. This amounts to 35.25% of Canada’s total population and includes its largest city, Toronto. This region accounts for 38% of the Canadian economy, and its loss would make Canada’s independence functionally impossible.
March 8th, 2025 – Canada’s foreign minister warns European allies that their government considers Canada to be under existential threat.
March 11, 2025 – President Trump threatens to “permanently shut down the automobile manufacturing business in Canada” if Canada does not drop a 250% to 390% tariff on U.S. dairy products, which he doesn’t state only kicks in after a certain quantity of tariff-free U.S. dairy enters Canada, a quantity that was originally negotiated and agreed to by Trump during the USMCA in 2018.
Are these the words of a friendly country and ally or a country wanting to anschluss the other?