Category: Tariffs

I’m not an economist but let’s go through a scenario to prove to ourselves that tariffs will work to make America incredibly wealthy.

Let’s use a simple example.

I live in Canada. Canada makes canoes. So let’s imagine we have a company in Canada that makes canoes and sells them to the USA. Let’s call it Canada Canoe (CC). CC employs 200 people.

A canoe costs $400 to make and is sold to our USA customers for $800 for a profit of $400 per canoe. The USA market is important to CC representing 60% of CCs annual sales.

Trump then places a 25% tariff on every canoe built in Canada.

The USA government is now collecting an additional $200 per canoe that I sell.

So as the CEO of CC, I have two choices here. I can absorb the additional $200 cost where the profit per canoe is reduced to $200 per canoe. Or, I could pass the additional $200 on to the customer by raising the price of a canoe to $1,000.

I decide to do that because CC is a public company. Any erosion of profits affects the stock price. So $1,000 per canoe it is.

CC makes a good canoe and customers are willing to pay that but sales have declined by 10% nevertheless. So this is where it could end for now but unfortunately, Trump decides to increase the tariffs on canoes to 50%.

So now a canoe costs a USA customer $1,200. Sales drop by another 40% with total sales declining 50%.

As CEO, I’ve been pushing hard to find new markets in other countries but that hasn’t happened quick enough. And moving operations to another country with lower tariffs is not an option.

If CC is moved to the USA, tariffs are no longer paid.

So, as CEO that’s what I decided to do.

CC was moved to upper state New York near Lake Placid. Only 2 employees, who already had US citizenship, remained with CC. The other 198 workers were dismissed.

CC was renamed to American Canoe (AC).

A canoe costs $600 to make, $200 more than when in Canada due to the higher labour costs. A canoe is sold to USA customers for $900 for a profit of $300 per canoe which is $100 less than the original costs when built in Canada prior to tariffs.

AC sales in the USA have recovered from the 10% loss prior to the tariffs.

So at a loss to the Canadian workforce , AC (formerly CC) remains a viable company in the USA. But at a loss to all jobs in Canada. And a loss to profits. And with the more expensive workforce under threat of now becoming unionized which will further impact profits and ultimately the viability of the company.

Of course, the numbers used here are fictional and it could be that with real valuations, this simple scenario may not arrive at the same relatively positive conclusion.

What Trump says. All roses and lollipops spoken like a true politician.

Question: If a country applies tariffs on all products it imports, will it become rich?

Answer:

Not necessarily. While tariffs can generate government revenue and protect domestic industries, they also have significant downsides that can hurt a country’s overall wealth. Here’s why:

1. Higher Prices for Consumers – Tariffs make imported goods more expensive, which can lead to higher costs for consumers and businesses. This reduces purchasing power and can slow economic growth.

2. Retaliation from Other Countries – Trade partners may impose their own tariffs in response, making it harder for the country’s exporters to sell goods abroad. This can hurt industries that rely on international markets.

3. Inefficiency and Lack of Competition – If domestic industries are protected from foreign competition, they may have less incentive to innovate or improve efficiency. Over time, this can lead to lower productivity and stagnation.

4. Supply Chain Disruptions – Many industries rely on imported materials and components. Tariffs can increase production costs, making domestic businesses less competitive globally.

5. Economic Isolation – Countries that heavily restrict trade may struggle to attract foreign investment and technological advancements, limiting long-term growth.

While some historical examples show that temporary tariffs can help specific industries develop (such as in early-stage industrialization), an economy that permanently isolates itself through high tariffs is likely to become less competitive and poorer in the long run. A balance of trade policies is usually the better approach.