I don't know how this tariff stuff works, so for my own understanding, how come countries retaliate to US tariffs by imposing retaliatory tariffs? Are they punishing their own nationals?
In a sense you can think of it that way, as a Canadian we counter-tariff the US and that can be considered punishing us; however the US is only one country and it encouraged more free trade with every other one of our trading partners so in a game theory sense it's affecting Canadian trade negatively with one country and affecting US trade negatively with you know.. every country.
Exactly right. There are trade deals forming between countries that in unprecedented ways to avoid dealing with the constantly changing tariffs while one country says they'll take their ball and play alone.
But the US is the bigger country just next to it, also the most practical to trade with. Trading with country further appart means less efficient in transport. Is it not still self inflicted harm?
The Econ 101 view would say yes, note most countries haven't imposed 1:1 retaliatory tariffs.
But economic considerations are not the only ones. Opposition to the American Revolution is a fundamental theme in Canadian history. People shouldn't be surprised when Canada acts accordingly.
What options do Canadians have? Deal with the wildly capricious economic policies of the US president, or go seeking other, more stable opportunities elsewhere? Almost all countertariffs we have in place are targeted as opposed to the sweeping tariffs Trump is implementing.
They could seek other opportunities elsewhere without adding tariff themselves: continue to import from the US and other countries like before. They may indeed export less to the US due to reduced demand from the US, but reciprocating the tariff won't help with that.
It's not practical when Trump sees a TV ad that enrages him and then cancels all negotiations, how are Canadian leaders supposed to proceed? There's no good faith whatsoever from him.
In the same way that Trump is punishing Americans with the import tariffs, yes. However that is just the primary effect, not the goal.
If you eat less you might go hungry, but that doesn't mean the goal was to go hungry. Rather it was to lose weight, and going hungry is just the direct effect.
Part of the goal of retaliatory tariffs is symbolic, part is to indirectly put pressure on Trump by affecting US export industry.
Tariffs are taxes on exports and like every tax tool it has its specific purpose.
Lets say US for example has surplus diary. It can export the surplus to other countries. Without tariff the only barrier is the exchange rate. If the diary prices are cheaper than local produce, US diary takes over the market and the US farmers make bank.
Canadian government might want to protect local diary industry. Or Canadians might have concerns about the chemicals in US diary. They have more stringent requirements from their farmers. Either way they raise tariffs for US diary products so that is on par or costlier than local produce.
Tariffs are normally a precision tool. Countries target specific goods and industries.
Now what Trump has done is taken a blunt hammer to it and said all goods from all countries will have tariffs. But if you look at retaliatory tariffs, imposed by other countries, it is precise and meant to hurt very specific industries.
For example, China has raised tariffs on US soyabean. In way it is targeted at US rust belt farmers. The idea being that farmers are a politically active class and if tariffs cause them pain, maybe Trump will come to the table. But that has happened yet. Maybe US farmers just don't care as they are winning too much.
An import tax works just like any other tax. You decide a law that "import of fresh fruit from Mexico is as of (date) subject to a 10% tax" together with details about exactly what fruit is considered fresh, how to calculate the tax, and where to pay.
Punishing their own nationals is very explicitly how this is sold to the voter base. "Prices are going to go up for you but unfortunately we have to do this to try to stop our neighbor from raising their import tax explicitly on goods from us".
Taxes are not a problem if everyone plays by the same rules. The problem for the economy is that some imports are subject to tax and others aren't, or when domestic goods aren't subject to the same tax. Picking winners and losers in an economy by political has never before in history turned out a winning concept.
