Peter Watson answers the million-dollar question about tariffs.
Why has our neighbour started a trade war with Canada? The answer is simple: Money.
The U.S. financial position is a mess. In round numbers, the U.S. spends $7 trillion per year, and revenues are only $5 trillion.
The challenge for the U.S. is how to reduce and eliminate its $2-trillion annual deficit.
The strategy is broken into two highly unpopular parts.
The first part is “DOGE,” standing for Department of Government Efficiency. Elon Musk heads this extremely controversial initiative. The main goal is to reduce government spending.
The second part is tariffs. President Trump has been preaching the virtues of tariffs for decades. The strategy is to capitalize on the U.S. buying things from many countries.
Countries that export goods to the U.S. will have their products subject to a tariff. This will provide additional revenue for the U.S. government.
Regardless of the past ways of conducting business, including negotiated trade agreements, the United States, in effect, is charging an entrance fee for goods shipped to its country for sale.
These strategies are potentially damaging to the U.S. economy and its trading partners. Inflation, job loss and the bankruptcy of many companies will be the collateral damage.
All of those consequences are severe — but also severe is the fact the mighty U.S. financial strength was in steep decline.
That does not negate the collateral damage to its citizens and many countries, including Canada. This does not give my endorsement of how the U.S. has conducted itself, but an attempt to try to understand its motives.
From the U.S. perspective, these are drastic measures for drastic times.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com
