Since Donald Trump became the 47th US president on January 20, 2025, we have been living with trade tariffs almost 24/7. Tariffs going up, down, set, reset, extended, lowered, upped... it has not stopped. The continuous media coverage with politicians, lawyers, economists, professors and with everybody explaining, re-explaining, criticizing, defending, rationalizing and more on tariffs ... so here is my take.
Shoppers pay an annual membership fee to shop at COSTCO, SAM’s Club and BJ Wholesale in the US. AMAZON Prime is a me-too variation formula, but all companies fundamentally say: dealing with us is a privilege. If you want to shop here, you need to be a member. They offer low prices, special merchandise, exclusive offers, free shipping etc. to justify the “club membership”. The membership revenues may appear small by comparison to their annual revenues but are a significant boost to their Net Operating Income.
Politics and “how to’s” aside, I believe, Mr. Trump is using the same concept. His tariffs indirectly say if you want to export to the US, you need to pay a tariff tax. (similar to a membership fee). Friendly countries pay +/- 10% to 15% and not so friendly countries pay more. So, why export to the US?
The US population of 340 M is smaller than Europe’s 745 M, but US GDP per capita is $89K vs. $62K for Europe. The US is an extremely attractive market with less regulations and one language vs. Europe, an attractive market too, but with a much complicated, uneven, and fragmented makeup. The US imported in 2024 a huge $4 Trillion, so just 15% is $600B of extra revenues for the US. Furthermore, the Trump message says avoid this “tariff tax” and open shop here. For a “Free membership”, you will need to invest and build the business in the US and contribute by employing Americans. Every employee in the US pays on average 15.9% of pre-tax income and employee payroll tax of 7.1% for a nice round number of 23%. So Trump’s formula is not too bad for the US ... $600B plus of tariffs, attracting billions of fresh investments (CAPEX) plus 23% tax from every new employee.
According to Statistics Canada, the US was our largest customer in 2024 accounting for a gigantic 76% of Canada’s exports . We are extremely vulnerable because we have one giant customer and it will take us some time to expand and diversify. “Elbow up” and “tit for tat” sound good but buying time to strategically re-adjust our export and economy is realistically a better strategy. We have incredible resources and hidden strengths. Canada was caught by surprise because we were unprepared. While we can be disappointed and upset with our southern neighbour, we need a new team that can prove that our cooperation and partnership are a win-win for both of us.
Sources consulted: Bureau of Economic Analysis, Google, ChatGPT, WIKIPEDIA, IMF, Tax Foundation and Statistics Canada.
Words 475 – Trump trade tariffs 8-2025