Former Bank of Canada deputy governor Paul Beaudry says one of U.S. President Donald Trump’s goals in imposing tariffs against America’s trading partners is to raise government revenues in order to fund his promised tax cuts.
“By putting these tariffs on goods both from Canada and from other countries… that’s giving revenue to the U.S.,” Beaudry told BNN Bloomberg in a Thursday interview.
“And there really needs to be extra revenue to pass through these tax cuts, which are really central to the platform and the policy that the Trump administration wants to push.”
Trump’s tariff threats and rhetoric since he returned to the White House earlier this year have triggered an increasingly bitter and widespread trade war involving economies all over the world.
But the U.S. administration’s ever-changing and at times conflicting trade policy proposals have left business leaders, policymakers and pundits guessing as to what Trump’s ultimate goals are.
Trump made numerous tax-related campaign promises last year, most notably to extend the sweeping tax cuts he implemented during his first term, which include a number of provisions set to expire at the end of this year.
He also promised to eliminate income taxes on tips, overtime and social security benefits.
Since Trump’s return to office, Republican lawmakers have been looking at ways to fulfil these promises without making significant cuts to government programs, which is where billions in potential tariff revenue comes in, Beaudry said.
“This is really serious money,” he said, “relative to what the Trump administration wants to put through in terms of having these extended tax cuts.”
Global retaliation
However, retaliation from countries that Trump has targeted with tariffs may end up changing the equation, especially when American consumers start seeing higher prices and reduced demand for the products they export.
“For the goods that (Canada sells) to the U.S., when you put on these tariffs, a lot of things are going to become more expensive,” Beaudry said.
“The other way they feel it is when we put tariffs on U.S. goods, this reduces the demand for them so that you get more unemployment in certain sectors in the U.S.”
Beaudry said that broadly speaking, Canada’s retaliatory dollar-for-dollar tariffs will have less of an impact on the American economy given its much larger size, “but there’s some areas in particular where it really hurts.”
“(And) you have to remember, it’s us, but it’s also a lot of others that are putting the same types of things into place; China’s retaliating, Europe is talking about it, Mexico is talking about it,” he explained.
“So, as the whole group starts putting tariffs on U.S. goods, then the U.S. starts feeling it.”
