What is a tariff? Guide for a hit on Canada – if Trump pulls trigger – national

Tariff threats of United States President Donald Trump are not going away.

Before and after taking over in his second tenure, Trump has threatened to collect a 25 per cent blanket tariff on all goods from Canada and Mexico to the US, in addition to targeting Chinese exports.

He has given various reasons for justifying the trade fight against other nations, claiming that he will provide funds for a massive tax cuts in the US and tighten the borders of North America.

But what’s exactly the tariff, the trade tool that Trump called the “most beautiful word … in the dictionary”?

Here’s how tariffs work, how they affect the economy and why governments use them.

Tariff is a tax placed on goods or services coming from another country.

For example, the US has previously imposed taxes on Canadian softwood lattles, steel and aluminum, which can be materials used by American Furniture manufacturer or automotive companies.

During that time, if that Furniture maker wants to import Canadian lattles, he is shown as part of the sale of goods – as a part of the sale of goods, such as 10 or 25 percent, or a flat dollar fee – will have to pay tariffs. Country

If the cost of imported goods was $ 100 at the time of sale and faces 25 percent tariffs on entering the country, then it will cost $ 125 for the buyer, it will go to an additional $ 25 government.

It makes the import of tariffs for a business more expensive. They can choose to back into the final cost of the product they sell, or they can find options to avoid importing the item in the first place.

In floating in its latest round of tariffs, Trump has promised to create an external income service to collect tax revenue.

“Instead of taxing our citizens to enrich other countries, we will impose tariffs and taxes on foreign countries to enrich our citizens,” he said during his inauguration on January 20.

But it is the importer of the tariff goods that pays the tax, and they pay it directly to their own government that imposed the tariff.

Western University’s Iight School of Business Policy Fellow, Mahmood Nanji, tells Global News that some businesses can negotiate contracts with suppliers so that the cost of duty associated with exports increases.

But he says he is an importer – the business within the tariffing nation – which usually pays the cost of tariffs.

“When the tariff is collected by the government that imposes them, the tariff is not paid by one government to another,” says Export development Canada website.

There are some reasons why Trump or any government wants to impose tariffs.

The first income is to increase. The income from the tariff can be used to strengthen the government’s treasury or pay for new services or tax cuts.

Trump promised to reduce taxation during the 2024 campaign and said he would use tariffs to fund them.

Tariffs can also protect the local industry from external competitors.

If the US business has stopped getting softwood from a Canadian supplier, thanks to high tariff costs, they will turn to other American business – if they can – for the same production, thus accelerated the local economy.

Finally, the tariff can be operated as a negotiation trick to obtain other concessions from a merchant partner.

For example, Trump expressed concern over the flow of fentonil through the northern border and criticized Canada’s failure in fulfilling the NATO cost commitments.

Canada, the US and Mexico are also ready to re -negotiate the CUSMA trade deal in 2026, Nanji pointed to tariffs as the initial salvo in those renewed trade negotiations.

“I suspect he is using a tariff to get a better deal as a benefit,” he says.

Trump has said that the proposed tariff “has nothing to do” with re -negotiated Cusma.

RBC economists Francis Donald and Nathen Janzen Write a guide on how tariffs affect industries and customers.

Before the tariff actually applies, buyers in the tariffing nation can stock up on goods that will spend more before the deadline. Donald and Janzen writes that they can actually see a temporary boost in trade activity before the tariff passes.

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But once it comes to a place, the demand for tariff goods decreases as it costs more for the import business.

Some may continue to buy from a tariff country if they can absorb high prices, potentially passing those costs on consumers, while others can try to find a supplier in their own country who can provide the same goods.

At the end of the day, businesses that have tariffs on their products are likely to hit sales. In the vacuum, which damages the economy of the country facing tariffs.

Economists have warned that the tariff war between Canada and the US will damage the economy on both sides of the border and will result in a downturn to the north of the border. A job loss will be expected, especially in industries that depend on trade with the US most

Donald and Janzen point out that some of the most sensitive areas are one of the high-compact supply chains such as the automotive industry, where parts can often cross the Canada-US border and therefore often withstand tariffs.

In recent months, tariff threats have also weakened the Canadian dollar, as investors have raised money in the US instead.

The impact of the tariffs can be reduced by the fiscal stimulation of the affected nation, which can react with the talented tariff.

Adverse tariffs will apply the same situation described above, but on the contrary.

In the case of Canada-US, Canadian businesses will pay duty on the affected goods brought north of the border, the government will increase income, and customers can pay more.

Prime Minister Justin Trudeau has said that if the US threats tariffs, the options on the table are “dollar-dolar matching tariffs” to respond.

Nanji says it can be difficult to crunch on the “dollar-dollar” aspect of the tariff tariff to take revenge based on how the original tariff is applied.

But, for example, if the US If Canadian tariffs impose up to $ 100 billion on Canadian goods in a given deadline, Canada will respond with tariffs on US goods or services that will also consider generating $ 100 billion.

Canada’s economy is about tenth of the US size, resulting in the outdoor impact in the case of dollar-bow-dollar tariffs.

One of Trump’s other criticism over Canada-US trade relations is that Canada runs a trade surplus with states. This means that Canada exports more of its goods and services to the US during a given period of imports.

Trump has said that this amount “subsidizes” the US Canada, but Nanji says this is not the same thing.

With the relative size of the Canadian economy and the “unexpected appetite” of the US for the Canadian natural resources, the trade surplus is almost inevitable, it is explained.

If the Canadian energy is removed from the equation, however, the US will already have a trade surplus with Canada, and when it comes to services, one already runs, says Nanji.

“When we think of subsidies, it is usually transferred from one government to another. There is no $ 100-billion or a $ 200-billion check that the US government sends Ottawa every year, “he says.

“Anyone who tries to do it is really trying to do something the same as the wrong similarity.”