In Canada, it might seem like the guns of Trump’s trade war are aimed outward. And given the enormous size of the U.S. economy, smaller countries such as Canada are indeed under fire. In recent years, about three-fourths of Canadian exports have gone to the United States, accounting for some 25 per cent of Canada’s entire economy. By contrast, only about 17 per cent of U.S. exports typically go to Canada, amounting to little more than 1 per cent of the U.S. economy.
So, the trade war does stand to hurt Canada more than the U.S. But thanks to Trump, U.S. prosperity is also under attack, in ways obvious and not.
The 19th century economist Henry George warned long ago that in a trade war “we do to ourselves in time of peace what enemies seek to do to us in time of war.” Imagine you are an enemy of the U.S. How might you wound the world’s largest and most successful economy?
For one, you might sow discord between the U.S. and its closest allies and trading partners. You also might lower the real incomes of Americans by driving up the cost of goods and services. Then you might try to squeeze America’s manufacturers with higher costs for raw materials and inputs sourced from abroad.
Trump’s trade war does all of this. Worse still, it’s a direct blow to America’s greatest asset, its economic freedom.
People are more economically free when they’re allowed to make more of their own economic choices. And few countries in the world permit their citizens more economic freedom than America. For as far back as we have data, the U.S. has been among the top 10 countries in measured economic freedom (with Canada usually just behind the U.S.). With low taxes, sound money, comparatively few regulatory restrictions, good property protection and mostly open trade, the U.S. has historically given its citizens relatively free rein to produce and exchange with whomever they want on whatever terms they want.
And produce they have. With just over 4 per cent of the global population, Americans manage to produce more than one-quarter of the world’s GDP. This is why their incomes are among the highest in the world while their poverty rate is one of the lowest.
But even before Trump launched his trade war, the area of economic freedom related to trade was in trouble. In the last 15 years the U.S. government has tightened non-tariff barriers to trade, making it more difficult for Americans to do business with foreigners. As a result, even with low tariff rates, the U.S. ranked 56th out of 165 countries for its freedom to trade in 2023, down from 8th in 1995.
Then came Trump’s trade war. Tariffs gyrated up and down as the president imposed, cancelled and reimposed tariffs. At one point in April, the average U.S. tariff rate was 28 per cent, the second highest in the world, with rates higher than Sudan and Djibouti. Before Trump’s first term, the average U.S. tariff rate was 1.5 per cent.
In other words, the U.S. has left the company of low tariff countries and joined the ranks of high tariff countries. As far as prosperity is concerned, this is not good company. In the 15 countries with the highest tariffs in the world, people earn about one-fifth as much as those in the 15 lowest tariff countries.
Moreover, we estimate that Trump’s tariffs may drop the U.S. from 56th to 76th place in the world in terms of freedom to trade and nearly knock it out of the top 10 in terms of total economic freedom.
For more than a century, the United States has been the most prosperous country in the world. But the guns of Trump’s trade war are squarely aimed at the foundation of that prosperity.
Mathew Mitchell is a senior fellow in the Centre for Human Freedom at the Fraser Institute. Robert Lawson is Fullinwider Chair in Economic Freedom and director of the Bridwell Institute for Economic Freedom at Southern Methodist University.