Month: April 2025

Image: Shutterstock

On so-called “Liberation Day”, April 2, a day that, to echo FDR, will live in infamy, (the day the world trading system was turned upside down and the US shot itself in the foot, or head) Donald Trump unveiled a limited list of “reciprocal” tariffs in a Rose Garden game show format. Like a magician revealing a secret, he unveiled a chart announcing imposition of minimum 10% “reciprocal” tariffs on a variety of transgressors, like the UK even though it buys more from the US than it sells to it, or Singapore which is an open port and has no tariff import barriers at all, or even the Heard and Macdonald Islands, a remote Antarctic territory of Australia populated exclusively by penguins. The penguins weren’t on the shorter Rose Garden chart but were included in the full list published by the White House on Truth Social (that authoritative channel). The Truth Social list included the Svalbard and Jan Mayen Islands near the Arctic Circle (population 2500, many of them scientists at research stations), the British Indian Ocean Territory, a jurisdiction populated entirely by the US military with some token Brits to maintain the fig-leaf of British sovereignty, and Norfolk Island, population 1500, a remote island between Australia and New Zealand. Some countries, like the small African kingdom of Lesotho or the French North Atlantic islands of St. Pierre et Miquelon (population 5000) didn’t get off so lightly, being assessed at 50%, half their supposed transgression rate of 99%. St. Pierre’s sin was that someone shipped some fish to the US whereas the French territory neglected to purchase the same volume of US goods. I guess they don’t need Dodge Ram or Chevy Silverado trucks there.

When the White House finally published the official list they cleaned up some of the ridiculous anomalies initially announced (the penguins were gone), but the only official response from the Office of the US Trade Representative (USTR) was to try to explain how the “reciprocal” tariffs were calculated. Prior to the announcement, trade observers assumed USTR would actually measure the level of tariffs imposed on US goods by other countries, possibly “tarrifying” other alleged non-tariff barriers, like Value Added Taxes, “currency manipulation”, cultural support policies, weak IP regimes, or any other perceived or real grievance from US industries. This list of “problematic” measures is released annually in the National Trade Estimates (NTE) document assembled and published by USTR. This year it was released on March 31, a couple of days before “Liberation Day” leading to speculation that it would provide the backstopping for the calculation of tariff reciprocity. However, no measures on the lengthy list of transgressions were actually included or used in making the “reciprocal” tariff calculations. Instead USTR published the following impressive looking formula to explain how the “reciprocal” tariffs were calculated. It makes Einstein’s E=mc² look simple.

What this actually means, however, is that the reciprocal punishment was based exclusively on whether the US ran a trade deficit with another country (except where there was no deficit, as in the case of the UK and Argentina, where countries got nailed with the minimum 10% tariff anyway.) The actual formula represents the 2024 US trade deficit in goods with a given country, divided by the total quantity of US imports from that country. So for example if Country X grows a lot of bananas very efficiently and exports them to the US, which doesn’t grow bananas (as far as I know), and if Country X doesn’t import the same value in US goods as it exports in bananas, it will get nailed with a “reciprocal” tariff of at least 10%, probably more, even if it doesn’t apply tariffs to US imports. Since Country X is a remote, relatively poor country, the likelihood of it being able to import substantial amounts of US goods is low. Never mind that its country is dominated by US service providers, such as delivery services, content streaming services and banks. Services don’t count in the Trump Administrations calculations.

As long as Country X or others like it can’t find a way to buy US products (the leading US exports are petroleum and gas, aircraft and aircraft parts, pharmaceuticals, autos, and chemicals, none of which a poor country like Country X has much need for), their banana exports to the US will be subjected to tariffs. This will increase the price of bananas for US consumers, and possibly lead to reduced imports, putting some banana farmers in Country X out of business thus making them even less likely to buy US products. Who thought this was a good idea? (You know who). As the US National Tax Foundation pointed out, the calculations are nonsense and will punish mutually beneficial trade. Indeed, the sloppiness and amateurish way in which they were calculated and announced seems to reflect the typical modus operandi of this Administration. Rush things to social media without fact checking or even applying a commonsense test, like checking for penguins. It makes USTR look downright foolish.

While some countries were dropped when the official list was published, a couple were never put on that list. Russia was one, since there is almost no bilateral trade post-sanctions; Canada and Mexico were two other significant exceptions. That is because they had already been the recipients of the Trump tariff treatment earlier, as I have written about here, with the imposition of 25% US tariffs (which were subsequently suspended for products that qualify for tariff-free treatment under the USMCA/CUSMA, except for steel and aluminum). Trump used the same loophole, the “national emergency” provisions of the International Emergency Economic Powers Act (IEEPA) to impose tariffs on Canada and Mexico as he used for the “reciprocal” tariffs on most of the rest of the world. This legislation allows the President to deal with “unusual and extraordinary threats” to the national security of the United States.

Trump invoked the supposed flow of fentanyl from Canada to the US as the pretext for his trade actions. Earlier reports had indicated that only 43 lbs of fentanyl had been seized in 2024 by US officials at the Canada-US border (over 21,000 lbs were seized at the Mexican border). Updated statistics winkled out by the Globe and Mail show that in fact 555 lbs were seized at the northern border, or inland having crossed the border, but of this amount, only 0.74 lbs (i.e. less than a lb.) was of Canadian origin, or 0.13 % of the total. The rest was sourced from Mexico, the US itself (almost 30%) or from unknown sources. Facts matter, but apparently not in this case. The use of the IEEPA to impose tariffs on the rest of the world is equally specious, and almost certainly a violation of the legislation, as argued here and in more detail here. Tariffs are the prerogative of Congress to impose except in emergency situations but given the supine, badly divided and highly partisan nature of the current Congress, legislators seem unwilling or afraid to assert their rights and jurisdiction vis a vis the President.

Coming back to the National Trade Estimates (NTE), which until “Liberation Day” many of us assumed would form the basis for the calculation of “reciprocal” tariffs, they are still worth examining to understand which measures get under the skin of US business and the US government. Not all countries hit by the Trump tariffs were listed in the NTEs (the penguin islands did not get a listing), but many were (58 in all) for one policy or another that some interest group in the US objected to.

In Canada’s case, the US not unreasonably complained about Canada’s antiquated supply management system that gives dairy, egg and poultry producers a set-price closed shop paid for by Canadian consumers, and keeps out almost all imports. It also complained about provincial control of liquor distribution and marketing, although 17 US states have similar systems, restrictions on US seed exports, where seeds have to be registered with the Canadian Food Inspection Agency before they can be sold in Canada, and several other issues ranging from plastic waste regulations to the proposed Digital Services Tax. The US also objected to Quebec’s Bill 96 where some US businesses are concerned about the impact of the language law on their federally registered trademarks. But it is in the intellectual property (IP) and cultural industries areas where the complaints pile up.

In the IP area, the NTE draws on last year’s Special 301 (Watch List) Report on Canada, an annual USTR exercise that compiles the IP related “transgressions” of countries into a report that highlights US concerns. Among these with respect to Canada are enforcement against counterfeit goods and online piracy, inspection of goods in-transit, transparency with respect to new geographical indications (GIs), and the broad interpretation of the fair dealing exception for the purpose of education. The notorious Pacific Mall in Markham, about which I wrote way back in 2019, still gets USTR attention. According to USTR’s report “Noticeably counterfeit luxury goods, apparel, electronics, and automobile parts are reportedly on display or hidden under tables or in back rooms but are available upon request.” I did not have that experience when I last visited the place pre-COVID but maybe I didn’t look like a likely buyer so was not invited to look under the table.

As for measures taken by Canada to support cultural industries, both the Online Streaming Act and the Online News Act got mentioned as areas the US will continue to monitor closely. The whole USTR “name and shame” exercise is a bit hypocritical in my view and certainly one-sided since the US itself has a number of shortcomings of its own with respect to policies that limit compensation to creators or fail to adequately provide responses to IP theft, such as establishment of site-blocking (disabling access to offshore pirate websites). Last year I wrote a tongue-in-cheek Special 301 Report assessing how the US is doing. (The USTR “Watch List” Designation You Will Never See).

All these transgressions, and more which the Trump Administration could dream up, like the existence of Goods and Sales Tax (GST) in Canada or a Value Added Tax (VAT) in Europe, could have been used to determine “reciprocal” tariffs. But they weren’t, as we have seen. In Canada’s case it was not assessed tariffs additional to those that had already been imposed on the improbable pretext of fentanyl trafficking, and in the case of other countries, the NTE Report was set aside in favour of USTR’s “innovative” trade calculation formula.

What will happen next? That is anyone’s guess. Since I started writing this blogpost a couple of days ago, global stock markets have gone up and down like a yo-yo. Global tariffs that were to have been imposed at midnight on April 9 were suddenly suspended for 90 days–as a result of an impending meltdown in US bond markets–just hours before the deadline (except for a 10% toll on everyone). There were exceptions, the penguins, Canada and Mexico because of the USMCA, and China, which found itself with a combined tariff of something like 145% imposed on all Chinese goods coming to the US because it had not simply rolled over and accepted the US calculation of “reciprocity”.

If the first 80 days of Donald Trump’s Administration is anything to go by, it is going to be a wild ride that could well end up crashing the vehicle in which we are all passengers . The National Trade Estimates and reports like the USTR Special 301 (IP Watch List) will continue to be prepared and released but will be either ignored or used depending on the current whim in the White House. Some in Congress may eventually be inclined to stand up for their rights to control tariffs. Some US citizens may even go to court to challenge what the Administration is doing in defiance of the law, but all this will take time. In the meantime, don’t look at your stock portfolio, tighten your seatbelt and be prepared for whiplash. It’s Show-Time at the White House. Or is it Amateur Hour?

© Hugh Stephens, 2025. All Rights Reserved.