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Speaker 1: President Trump just hit Canada with a new set of

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Speaker 1: tariffs in their big fifty percent. Look, this is a

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Speaker 1: big deal. He's sending a message to every other country watching.

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Speaker 1: They're waiting for the next round of the global trade war.

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Speaker 1: The message is simple. It's not actually about Canada. It's this.

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Speaker 1: It's if you retaliate, your trade deal may not save you.

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Speaker 1: Canada was just the first one to find that out. So, yes,

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Speaker 1: this is a story about a fifty percent tariff on

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Speaker 1: Canadian goods. We'll get into that. But it's also a

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Speaker 1: story about whether executive power can be used this way,

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Speaker 1: about America's place in the world, about whether we the

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Speaker 1: United States, is capable of coming to terms with and

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Speaker 1: living up to a trade agreement, and about what the

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Speaker 1: White House may be trying to signal to every other

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Speaker 1: trading partner right now. Fundamentally, it's a story about the

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Speaker 1: future of our economy. Now. It matters for American family

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Speaker 1: because ultimately, what the President's doing is imposing taxes on Americans.

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Speaker 1: He's imposing taxes on Americans who buy stuff from Canada,

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Speaker 1: another way of saying you, you are paying these taxes.

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Speaker 1: It also matters for Canada. My rough instant analysis, and

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Speaker 1: it's very quick and dirty, says, this is a much

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Speaker 1: bigger deal than the president's most recent volleys in our

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Speaker 1: on again, off again trade war with our nearest neighbor.

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Speaker 1: And it matters for the rest of the world and

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Speaker 1: our relationship with the rest of that global economy because

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Speaker 1: the next round of the trade war, it's just around

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Speaker 1: the corner. Okay, So what actually happened yesterday? That was

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Speaker 1: July twenty The White House posted three proclamations using what's

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Speaker 1: called Section three hundred and thirty eight of the Tarifact

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Speaker 1: of nineteen thirty And if you'd never heard of it before,

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Speaker 1: don't worry. It was on no one's bingo card. This

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Speaker 1: was a very surprising legal theory. Each one of these

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Speaker 1: proclamations slaps an extra fifty percent tariff on a different

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Speaker 1: list of Canadian goods, and those tariffs they're set to

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Speaker 1: come into effect in a month's time. Given the President

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Speaker 1: and he's on again, off again nature of all of this,

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Speaker 1: when he says something's going to happen in thirty days time,

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Speaker 1: that either means it will happen in thirty days time

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Speaker 1: or it won't happen in thirty days time, or there'll

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Speaker 1: be a lot of drama between now and thirty days time.

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Speaker 1: Take your pick. These disputes, they have these labels. They're

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Speaker 1: officially over motive vehicles, alcoholic beverages, and dairy. Look, there's

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Speaker 1: going to be a lot of ink spilled over these disputes,

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Speaker 1: and you might ask, what is our real beef with

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Speaker 1: Canadian dairy, booze and cars. Let me save you the time.

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Speaker 1: The dispute over dairy and boos they're economically tiny. They

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Speaker 1: barely matter for the US economy at all. The motor

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Speaker 1: vehicle thing, it's a bit bigger. But it's really about

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Speaker 1: Canada having retaliated in response to Trump's trade wars. So

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Speaker 1: he tried tariffs. They they send a few back, and

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Speaker 1: the President's upset about here that Look, there's really not

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Speaker 1: much here to these particular complaints other than a desire

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Speaker 1: to punch Canada dressed up in a novel legal theory.

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Speaker 1: But this punch, this set of punches, is different. The

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Speaker 1: White House says that these tariffs hit the list of goods,

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Speaker 1: whether or not they qualify under our existing free trade

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Speaker 1: agreement with Canada, that free trade agreements called the USMCA.

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Speaker 1: Let me put that in plain English. Even if a

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Speaker 1: Canadian good ticks every box in order to deserve or

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Speaker 1: warrant preferential treatment under our existing free trade agreement, the

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Speaker 1: White House has said, we're not going to give you

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Speaker 1: that preferential treatment the free trade agreement we signed. We're

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Speaker 1: just going to ignore it. Now, why does that matter

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Speaker 1: so much? He needs to know a bit of history.

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Speaker 1: If the US Canada trade war of twenty twenty five

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Speaker 1: and twenty twenty six, because there was a lot of

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Speaker 1: tariff chaos early in Trump's second term, I'm sure you

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Speaker 1: remember it, but having your goods be compliant with the

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Speaker 1: existing US Canada Mexico free trade agreement was actually really

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Speaker 1: important to skate patch. So throughout twenty twenty five, the

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Speaker 1: White House was throwing around these tariff threats would reckless abandon,

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Speaker 1: but would also quietly ad an asterisk, saying that these

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Speaker 1: threats would apply to every country and every good, oh,

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Speaker 1: except for those from Canada and Mexico that would qualify

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Speaker 1: under our existing free trade agreement. It was a special

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Speaker 1: deal for our nearest neighbors, I think, mainly to try

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Speaker 1: and reduce some of the economic havoc that the trade

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Speaker 1: wars were causing. Well, this turned out to be a

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Speaker 1: really important eskate patch because almost all of the Canadian

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Speaker 1: trade that was caught up in those earlier fights actually

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Speaker 1: qualified has been compliant with our existing free trade agreements.

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Speaker 1: A Canadian Finance Department briefing said ninety seven percent of

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Speaker 1: Canadian exports covered by those earlier tariffs were KUZMA compliant.

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Speaker 1: Came in Judy three. KUZMA. What's that, Well, that's what

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Speaker 1: the Canadians call the USMCA. It's not a French translation.

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Speaker 1: They just have different laws up there, but it's the

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Speaker 1: Canadian name. It's the same deal, different name. So look,

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Speaker 1: the rough version is something like ninety percent of Canadian

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Speaker 1: goods were exempt from all of the machinations of the

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Speaker 1: Trump trade war. Our relationship with Canada. The rhetoric was bad,

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Speaker 1: but the reality was that we were trading pretty well

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Speaker 1: with Canada throughout the trade war. Basically, the message was

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Speaker 1: that if you get your paperwork right, if you qualify

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Speaker 1: your product, then you get shelter from the storm, the president,

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Speaker 1: of course being the storm. Now the message is for

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Speaker 1: this list of goods, the shelter doesn't work anymore. And

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Speaker 1: that's why this is a much bigger deal than it

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Speaker 1: might sound like at first. Now I probably need to

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Speaker 1: give you a bit more history about what's going on here,

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Speaker 1: And honestly, the history here is so absurd that the

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Speaker 1: best thing I can do is just line the facts

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Speaker 1: up and let them do the comedy for you. First

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Speaker 1: of all, Trump spent his first term telling everyone that

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Speaker 1: NAFTA was a disaster, and n after was the free

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Speaker 1: trade agreement between the US, Canada and Mexico negotiated by

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Speaker 1: President Clinton, passed by Congress. So the first president Trump

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Speaker 1: renegotiated it. Then he announced the replacement that was called

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Speaker 1: USMCA rhymes a bit with YMCA, one of his favorite songs,

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Speaker 1: and he announced it like he discovered fire and fentted

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Speaker 1: trade and personally rescued North America from him a deal

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Speaker 1: that the United States had. This is the awkward bit,

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Speaker 1: the embarrassing bit. We had noticeably already been in the

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Speaker 1: free trade deal with remarkably similar rules for decades. The President,

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Speaker 1: of course, held a whole new signing ceremony. There were flags,

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Speaker 1: people applauded, there were sharpies, but nothing really changed except

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Speaker 1: the branding. We now had new initials for our new

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Speaker 1: free trade agreement with Canada, but it was basically the

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Speaker 1: old one with a new dressing. President Trump got elected again,

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Speaker 1: and so in the second term he decided he really

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Speaker 1: hated that agreement that the first President Trump had struck

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Speaker 1: with Canada, and he kept eating Canada with tariffs anyway,

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Speaker 1: and then he adjusted them, and then he would carve

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Speaker 1: out USMCA compliant goods. Then he slapped sectoral tariffs on

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Speaker 1: other stuff, and then he kept telling everyone that the

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Speaker 1: trade agreement that inherited from his incompetent predecessor that was

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Speaker 1: President Trump wasn't very good anyway. And so now here

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Speaker 1: we are again, same president reaching for a law from

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Speaker 1: nineteen thirty to tariff Canadian goods even when they qualify

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Speaker 1: under the trade agreement that replaced the trade agreement that

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Speaker 1: he blew up in order to write this trade agreement. Look,

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Speaker 1: this isn't really trade policy. This is a man negotiating

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Speaker 1: with himself, with his ego and with his poor understanding

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Speaker 1: of what's really going on. He wanted to write a

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Speaker 1: deal to replace the deal that he blew up because

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Speaker 1: he hated the deal that he'd been in. But effectively

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Speaker 1: that original deal is still where we are it's all

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Speaker 1: just NAFTA with another name, and this White House can't stop,

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Speaker 1: won't stop. The White House recently said it's not going

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Speaker 1: to agree to renew the USMCA, that's the one that

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Speaker 1: President Trump renegotiated. They're not going to renew it in

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Speaker 1: its current form. This is more nonsense and more misdirection,

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Speaker 1: because if the three countries don't agree in the twenty

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Speaker 1: twenty six review to extend the deal for another sixteen years,

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Speaker 1: if they don't agree to a sixteen year renewal, then

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Speaker 1: the agreement, which passed Congress and his law in the

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Speaker 1: United States, it doesn't just vanish tomorrow. It stays in force.

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Speaker 1: It shifts from look, we agreed to a sixteen year

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Speaker 1: renewal to annual reviews. So every year now it's up

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Speaker 1: for renewal. And if every year they fail to extend

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Speaker 1: the agreement, guess what, it just continues. And it's going

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Speaker 1: to continue this way until twenty thirty six. So when

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Speaker 1: the President says he hasn't agreed to renew the deal,

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Speaker 1: that just means he's not agreed. But he goes to

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Speaker 1: his earlier agreement, which is that we automatically renew the

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Speaker 1: deal and we're going to continue to do so for

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Speaker 1: another teen year. So what's happening. In reality? We have

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Speaker 1: a trade deal which keeps renewing, which past Congress, but

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Speaker 1: also in a different reality, the President's does it off

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Speaker 1: this nineteen thirty law to say, effectively, we reserve the

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Speaker 1: right to treat the deal as purely optional whenever it

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Speaker 1: gets inconvenient, even though Congress passed it. Yes, the courts

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Speaker 1: are going to get involved. Look, I know that trade

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Speaker 1: agreements are always a mix of rules and politics, and

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Speaker 1: fair enough, I get that the whole point of signing one. Well, really,

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Speaker 1: the whole point of signing one is to create and

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Speaker 1: understanding you and your partner can rely on each other.

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Speaker 1: A trade agreement's meant to be like a marriage vow.

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Speaker 1: It's for better, for worse, for richer, for poorer, and

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Speaker 1: sickness and in health. And when you marry someone you

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Speaker 1: can invest more deeply in your relationship knowing that they're

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Speaker 1: going to be there for you and with you under

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Speaker 1: those terms in the future. But mate, if NAFTA or

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Speaker 1: the UMCA or whatever we're calling it these days, as

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Speaker 1: a marriage this has turned into an abusive marriage. Now

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Speaker 1: it turns out that the latest renegotiation, by which I

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Speaker 1: mean the President deciding he's going to issue literally dozens

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Speaker 1: of pages of new tariffs ends up looking incredibly weird.

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Speaker 1: And that's because we're going to need to talk about

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Speaker 1: the novel legal theory behind our new trade war with

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Speaker 1: Canada on a remind you, I'm not a lawyer, so

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Speaker 1: I'm just going to sketch out the big details. Okay,

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Speaker 1: big picture. Remember, the Constitution gives Congress, not the President,

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Speaker 1: the power of a tariffs in the US was formed at

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Speaker 1: a revolt over taxes. We thought the people's house, rather

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Speaker 1: than the king, should handle taxes. So the Constitution gives

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Speaker 1: all the default powers over tarifts to Congress, which means

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Speaker 1: if the President is going to do something without Congress,

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Speaker 1: and that's his determination he's decided to do, none of

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Speaker 1: the Trump trade war has gone through Congress. Means he

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Speaker 1: has to pretend that somewhere along the line Congress gave

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Speaker 1: him the power to host tariffs. Now, the courts have

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Speaker 1: really forced President Trump to pay attention to this, and

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Speaker 1: the Supreme Court ruled many of his existing tariffs unconstitutional

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Speaker 1: and illegal because they didn't come from Congress. So these

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Speaker 1: new anti Canada proclamations. They learn on what's called section

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Speaker 1: three hundred and thirty eight of the Tariff Act of

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Speaker 1: nineteen thirty. This isn't normal trade law plumbing. This is

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Speaker 1: the White House heading down into the basement to find

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Speaker 1: an old wrench. It's a dusty, old trade war wrench

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Speaker 1: from nineteen thirty. It was last years when Herbert Hoover

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Speaker 1: was still in the building. Section three hundred and thirty eight,

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Speaker 1: let's the president slap additional duties on a country of

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Speaker 1: up to fifty percent if he finds that another country

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Speaker 1: discriminates against US commerce, or if it piles an unreasonable

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Speaker 1: unequal burden on the United States, and the law says

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Speaker 1: that the tariff should offset that burden or disadvantage. So

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Speaker 1: the statute reads at least a bit like it's a

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Speaker 1: retaliation tool, but it's not a free floating smash whatever

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Speaker 1: you want button. And the modern analysts that I've looked

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Speaker 1: at they read it the same way. There was a

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Speaker 1: February twenty twenty sixth briefing from my friends that the

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Speaker 1: Peterson is for International Economics, which called section three thirty

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Speaker 1: eight quote an untested retaliatory tool and said that it

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Speaker 1: had never been used to apply to a tariff, although

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Speaker 1: it has been threatened that way over the years. It

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Speaker 1: does sound like though it's meant to invoke some degree

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Speaker 1: of proportionality in the response. So look this law. It

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Speaker 1: is weird. It's a weird way of moving forward. And

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Speaker 1: that weird law is where you get a weird list

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Speaker 1: of the things that the United States now is going

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Speaker 1: to taraf Again, I want to remind you, let's go

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Speaker 1: back the proclamations from the President say we've got a

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Speaker 1: complaint because we've got dispirites around cars, around alcohol, and

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Speaker 1: around dairy. Now, it doesn't mean that in return, we're

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Speaker 1: going to put tariffs on cars, booze, and milk or cheese.

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Speaker 1: But what we're actually going to do is hit a

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Speaker 1: random rab bag of goods that the US imports from Canada.

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Speaker 1: So there's a long annex, many pages that tells you

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Speaker 1: what goods we're going to hit. Now, the White House

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Speaker 1: has carved out a bunch of stuff that it says

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Speaker 1: we really want from Canada. We're not going to tariff

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Speaker 1: those things. That's energy, pittash, critical minerals, certain aircraft goods,

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Speaker 1: and everything that's already under Section two thirty two tariffs.

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Speaker 1: So what you end up with, for instance, is a

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Speaker 1: proclamation about our complaints about how the Canadians are treating

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Speaker 1: American cars, and then we're going to impost tariffs on

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Speaker 1: all sorts of things that have nothing to do with cars,

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Speaker 1: so honey and flowers and cement and plastics and furniture

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Speaker 1: and telecom gear. Basically, US tariff policy has discovered the

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Speaker 1: US Canadian junk draw and that really is the explanation

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Speaker 1: for what's going on here. Okay, what about the economic effects,

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Speaker 1: I think mostly relatively small direct effects for the United States,

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Speaker 1: real money for Canada. And what really matters is what

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Speaker 1: it's going to do to the Americans, America's place in

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Speaker 1: the world. So let's do some arithmetic. And I want

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Speaker 1: to show you a little bit of modesty here. I

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Speaker 1: don't have a polished, huge quantitative model of what's going

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Speaker 1: on here. I've just got a day one snap instant

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Speaker 1: analysis which I'm just going to try to get the

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Speaker 1: orders of magnitude right. What's going on here? My raugh

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Speaker 1: estimate is that the tariffs that are listed o but

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Speaker 1: literally dozens of pages of a presidential proclamation. I want

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Speaker 1: to note to you, by the way, the White House

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Speaker 1: never says anything about what they think the economic consequences

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Speaker 1: will be. That apparently is a secret. Maybe they did

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Speaker 1: their homework and they aren't telling us. Maybe they never

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Speaker 1: did any homework and they don't care. But my analysis

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Speaker 1: says that these tariffs will probably cover a bit more

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Speaker 1: than twenty billion dollars of goods that come from Canada

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Speaker 1: into the United States. That's maybe round about five percent

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Speaker 1: of what we import from Canada. So it's meaningful without

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Speaker 1: being huge, that five percent big plus or minus around it.

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Speaker 1: So for the United States, my reader is basically feeling

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Speaker 1: modest macro canomic effect with very real microeconomic consequences. Roughly speaking,

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Speaker 1: it might cost the typical American household fifty bucks, maybe

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Speaker 1: one hundred bucks, maybe one hundred and fifty bucks a year.

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Speaker 1: All that's going to depend on what you want to

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Speaker 1: your economic assumptions about pass through substitutions. And they think, importantly,

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Speaker 1: when we have less competition from Canada, it doesn't just

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Speaker 1: hurt Americans who buy stuff from Canada, because that means

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Speaker 1: less competition for American firms. And so some American firms

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Speaker 1: now face less competition and they might jack up their

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Speaker 1: prices too, So the effects here are meaningful, but not giganty.

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Speaker 1: My friends in Canada, and yes, you are still my friends.

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Speaker 1: I have a brother who lives in Canada. I love

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Speaker 1: him very much, but I love all my Canadian friends.

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Speaker 1: This surreal hit. It's not because it covers all exports.

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Speaker 1: It doesn't. But roughly speaking, this is going to apply

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Speaker 1: to something like three percent of Canada's total exports across

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Speaker 1: all countries. It's nearly one percent of GDP the export

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Speaker 1: of these goods to the United States, and all of

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Speaker 1: a sudden, there's a fifty percent tariff wall. Look, that

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Speaker 1: is the sort of thing the businesses are going to notice,

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Speaker 1: exporters are going to notice, the provinces are going to notice.

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Speaker 1: So all of this is going to create uncertainty above

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Speaker 1: and beyond the specific tariffs that the President is listed.

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Speaker 1: I want you to realize, though, that this is a slice.

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Speaker 1: It's a meaningful slice, and compared to a lot of

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Speaker 1: what was happening earlier in Trump's second term, where there

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Speaker 1: was the escape patch, that escape patch has gone. There's

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Speaker 1: a very real and very genuine escalation from the United

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Speaker 1: States here. And let me tell you beyond just the

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Speaker 1: spreadsheet lines and the numbers and the industries that are affected.

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Speaker 1: I've been talking with my Canadian family, with my Canadian friends,

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Speaker 1: Canadian journals, have been reading the Canadian media, and let

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Speaker 1: me tell your folks, they are mad. They are hopping mad.

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Speaker 1: It's not just that they see this as unfair. It's

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Speaker 1: not just that they see that their free trade agreement

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Speaker 1: has been breached again rebreached. Is that they see themselves

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Speaker 1: as being treated poorly, as a horn in the game,

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Speaker 1: as President Trump not taking the relationship remotely seriously. They,

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Speaker 1: let me tell you, are sick of this. I've talked

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Speaker 1: to Canadians have said they will never come to the

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Speaker 1: United States again, They will never buy an American made

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Speaker 1: product again. None of that is stuff you can deal

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Speaker 1: with in a trade agreement. This is a population who

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Speaker 1: are sick and tired of the United States, and individually

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Speaker 1: they want to retaliate. And many of them are saying

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Speaker 1: to me, why Canada, Why now? And I think this

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Speaker 1: is an important question on both sides of the border. Look,

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Speaker 1: some part of what the administration is saying as plause

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Speaker 1: will a lot of it as not the dairy dispute.

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Speaker 1: It's probably the cleanest rationale on its own. The US

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Speaker 1: has been whining about the way Canada runs its dairy

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Speaker 1: tariff quotas for years. The Americans don't like it. Here's

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Speaker 1: the flip side. The other side is, this is a

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Speaker 1: tremendously powerful political lobby in Canada. Here's the real dirty

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Speaker 1: work of how trade deals work. The Americans are meant

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Speaker 1: to get in a room with the Canadians and they

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Speaker 1: meant to say, let's try and free up trade. And

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Speaker 1: basically that's how both NAFTA and USMCA works. And then

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Speaker 1: both sides sort of said, you know what, I've got

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Speaker 1: a few political problems at home. I can get most

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Speaker 1: trade freed up and we can have a pretty good relationship.

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Speaker 1: You're gonna have to give me a couple of mulligans

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Speaker 1: here because there's a few industries it's not worth the

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Speaker 1: political headache. And the Americans list, there's the Canadians list,

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Speaker 1: there's and what you end up with is never perfectly

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Speaker 1: free trade, but mostly free trade. The US dairy industry

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Speaker 1: is one of those areas where it's just going to

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Speaker 1: be too hard for the Canadians to get it done.

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Speaker 1: I think they should. I wish they would, but if

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Speaker 1: I were in charge, of US trade policy. I would

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Speaker 1: understand this as part of Look, they're most of the

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Speaker 1: way there. Here's a tiny, economically insignificant industry to the

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Speaker 1: United States, which is politically very important in Canada. And

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Speaker 1: so this is the sort of thing where you know,

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Speaker 1: it's just good grace in a trade agreement to just

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Speaker 1: quietly admit there's a little bit of politics that makes

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Speaker 1: us difficult to get to the perfect economic agreement, and

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Speaker 1: so you know, having a trade agreement doesn't make those

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Speaker 1: politics disappear. The alcohol dis it's smaller and it's more provincial.

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Speaker 1: It's basically dug Ford doesn't like Americans buying Canadian wine.

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Speaker 1: He wants to punch back, and some of the other

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Speaker 1: provinces have done that as well. It's not coming from

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Speaker 1: the national government. The motor vehicle fight. It's all tied

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Speaker 1: up with earlier rounds of tariff from the United States

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Speaker 1: and retaliation and retaliation from retaliation. I think the point

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Speaker 1: here is, though, is if you step back from the

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Speaker 1: legal labels and the novel legal theory here and ask

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Speaker 1: what's the broader play that we're seeing here, I think

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Speaker 1: the answer is it's bigger and dairy. It's bigger and booze,

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Speaker 1: it's bigger in cars. In fact, my interpretation, I want

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Speaker 1: to be clear, this is an interpretation. It's mine. It

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Speaker 1: could be wrong, it's probably right. That's why I'm telling

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Speaker 1: it with Yeah. My interpretation is that actually it's not

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Speaker 1: about Canada. That Canada is the test case. It's the

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Speaker 1: punching dummy that we're going to beat up. See, the

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Speaker 1: White House has gone out of its way to point

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Speaker 1: out that the only two countries that retaliated against the

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Speaker 1: United States were Canada and China, and that it went

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Speaker 1: out of its way to note that that's not just

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Speaker 1: a complaint, that's a message, and I think you've got

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Speaker 1: to hear that message in the context of whatever's coming

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Speaker 1: next in your global trade war. The administration is really

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Speaker 1: right on the cusp of imposing a whole new set

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Speaker 1: of tariffs on all of its major trading partners, sixty countries.

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Speaker 1: I've made another video about they'll try and link that below.

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Speaker 1: But basically, it's got another legal theory. It's all about

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Speaker 1: forced labor. I don't believe it's got anything to do

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Speaker 1: with force labor, but it's got another legal theory where

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Speaker 1: it thinks it can reimpose tariff's on the rest of

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Speaker 1: the world. Those new tariffs are coming any week now,

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Speaker 1: which means that any week now other countries around the

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Speaker 1: world are facing a moment of truth should they retaliate

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Speaker 1: against the United States. And I think the answer is

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Speaker 1: that the United States is trying to say, Hey, look out,

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Speaker 1: if you retaliate against US, boom, We're coming right back

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Speaker 1: at you. So by this view, these tariffs, they're not

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Speaker 1: about Canada. They're actually about the next round of the

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Speaker 1: global trade war. Hey, I want us to slow down,

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Speaker 1: step back, and really see the big picture here. Because

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Speaker 1: the big picture and the lesson I really want you

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Speaker 1: to take away from this is the value of a

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Speaker 1: trade agreement isn't in what the text says, just like

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Speaker 1: the value of a marriage agreement is beyond the precise

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Speaker 1: promise you say it out loud on your wedding day.

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Speaker 1: It's more about whether the institutions actually hold the people

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Speaker 1: in charge to what they say they've agreed to. If

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Speaker 1: a deal only protects you until the next presidential mood swing,

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Speaker 1: then what you've got isn't really a rule. It's just

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Speaker 1: a junk drawer. It's a junk draw full of old

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Speaker 1: wrenchers and honey and hockey sticks and whatever else. Someone

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Speaker 1: decided to grab that moment and tariff that afternoon