Trump 2.0 tariffs and our trading partners’ retaliations are taking shape. What can we expect? Today I offer my own macro perspective and some thoughts from others.

Here’s Canada’s reaction to the Trump tariffs: 

“Watch PM Justin Trudeau’s full announcement on Canada’s response to U.S. tariffs,”https://www.cp24.com/video/2025/02/02/full-watch-pm-justin-trudeaus-full-announcement-on-canadas-response-to-us-tariffs/

An excerpt from Trudeau’s speech:

Canada has critical minerals, reliable and affordable energy, stable democratic institutions, shared values, and the natural resources you need. Canada has the ingredients necessary to build a booming and secure partnership for the North American economy, and we stand at the ready to work together…. 

Unfortunately, the actions taken today by the White House split us apart instead of bringing us together.

Tonight, I am announcing Canada will be responding to the U.S. trade action with 25 per cent tariffs against a $155 billion worth of American goods. This will include immediate tariffs on $30 billion worth of goods as of Tuesday, followed by further tariffs on $125 billion worth of American products in 21 days’ time to allow Canadian companies and supply chains to seek to find alternatives.

Like the American tariffs, our response will also be far reaching and include everyday items such as American beer, wine and bourbon, fruits and fruit juices, including orange juice, along with vegetables, perfume, clothing and shoes. 

It’ll include major consumer products like household appliances, furniture and sports equipment, and materials like lumber and plastics, along with much, much more.

And as part of our response, we are considering with the provinces and territories, several non-tariff measures, including some relating to critical minerals, energy procurement and other partnerships.

Here’s Bloomberg’s inventory of reactions thus far: 

Live Blog:

“Trump Imposes Sweeping Tariffs on US Trading Partners,” https://www.bloomberg.com/news/live-blog/2025-02-01/trump-imposes-tariffs?srnd=homepage-americas&sref=TG2o5EVv

News article:

“Canada, Mexico Hit Back at Trump Tariffs, China Vows Action,” https://www.bloomberg.com/news/articles/2025-02-01/trump-hits-china-canada-mexico-with-tariffs-to-open-trade-war?sref=TG2o5EVv

And here’s a link to the GZERO piece detailing what was coming before it arrived last weekend.

“The Big Tar-iffs: Will he or won’t he start a trade war?” https://www.gzeromedia.com/gzero-north/the-big-tar-iffs-will-he-or-wont-he-start-a-trade-war

Economists are nearly universal in their criticism of the DT 2.0 tariff war. However, views are not unanimous. DT has some supporters, too. Over the last few days, I have been in chat after chat with many skilled critics and some skilled supporters. DT critics outnumber supporters by a wide margin. (I don’t have an exact scorecard.) The opinions range from “This is for negotiations strategy only and will do no permanent harm” to “We are going to repeat the Smoot-Hawley Tariff Act experience of the Great Depression era.” 

David Berson, PhD, Cumberland’s Chief US Economist, wrote this in his pre-week missive on Sunday:

Tariffs: The US announced the imposition of broad-based 25 percent tariffs on products from Canada (limited to 10 percent on oil and natural gas) and Mexico, with 10 percent tariffs on China. We don’t know how long these tariffs will remain, if they will be increased if there is retaliation (as promised by these countries), or if they are truly being instituted not for economic reasons but for other policy purposes (fentanyl and illegal immigration). Importers will pay these higher duties and will likely pass along some or all of them in the form of higher prices. Some of these price increases may be mitigated by a stronger dollar. In general, however, these tariffs (exacerbated by promised retaliation) act as a negative supply shock to the US economy – slowing growth and raising prices. For how much and how long are not known at this time. There is likely to be substantial financial market instability as a result of these tariffs (at least at the start).

I fully agree with David Berson and want to add this macro perspective, which is an excerpt from the chat group discussion among and between many of my professional colleagues.

One of our chat colleagues noted this fact: “US 10% tariff on all imports generates about $240B in customs duties. Compare that to the US$36 trillion public debt level.”

Kotok: I wrote this in one chat on Saturday:

Fascinating discussion with such diverse views of folks for whom I have great respect. A question. Total world trade is $30 trillion. (I’m rounding.) Assume 100% of trade is subjected to a 10% tariff or retaliatory tariffs so that the final result is $3T in tariffs collected by all the global fiscal authorities who then use the tariffs to reduce deficits or increase surplus depending on each fiscal condition. Doesn’t this suggest a substitution of consumption taxation instead of fiscal stimulus? If no, why not? If yes, doesn’t the cost (interest rate and/or credit rating status) to the fiscal authorities go down by the amount of the tariff increase? McKinley tariffs and Smoot Hawley tariffs triggered retaliatory tariffs. Why expect anything else because of Trump’s tariffs?

In response to a chat discussion about tariffs and medical goods and services, I wrote.

History: before 1996 tax law changes Puerto Rico had 34 pharmaceutical companies manufacturing drugs; 33 were American; and supervision was domestic US on US territory. Law change had 10 years to implement. So, pharma departed at Washington’s initiative. Then the ten-year window passed. 2006 was year one of Puerto Rico’s failure, ending with a huge municipal bond  bankruptcy. Pharma moved to China and India and elsewhere. I’m presently alive thanks to meds from both countries and from South Korea. Those meds used to be manufactured in the US. Washington’s policy is what moved them abroad. My point is that it’s not just tariffs. 

And I added a second point:

Smoot-Hawley and McKinley-era tariffs were each in the gold standard era. In the post-Bretton Woods fiat currency regimes, my $3T example of global tariffs on all tradable goods and services would amount to a global devaluation of all fiat currencies. Clever DT 2.0 folks have figured out how to devalue $. Which means they will revalue precious metals, hard assets, money substitutes (crypto?), and anything else that hurts when it drops on your foot or has no traceable record (Trump tokens). Global price level goes up, devaluations occur. Tariff finger pointing and blame-game rhetoric is political cover.

Is there a conspiracy? I’m not sure. Is there an outcome? With certainty there is one coming.

My colleague John Mousseau believes that the tariffs may just be posturing by Trump, but I’m not convinced that is the case. John and I see this differently.