Smart Money: The Trump Tariffs

Stay focussed on your financial goals

Long-time Alaska Highway News financial columnist, Brad Brain, has revived his column, Smart Money, this week for The Broken Typewriter. Brad has over 25 years experience as a Certified Financial Planner in Fort St. John, is an international speaker and author who has helped to author the CFP qualifications exam, and has appeared as an expert on poverty reduction strategies for the Government of Canada.

“A tariff is basically a tax on imports. They are usually used to help out a local industry.” ( Photo source: Facebook)

By: Brad Brain

It’s January 2025 and our country is in political disarray. The Prime Minister has announced he is resigning, there is no clear succession at the moment, and Donald Trump is back in the White House.

In this chaotic environment, macroeconomics has entered the public consciousness. People are now talking about tariffs. It’s a bit scary and confusing.

Recently I saw something on social media that highlights how some people do not understand tariffs, which is not surprising given the way that Trump has positioned them.

In this particular video clip, there is an American fellow who is 100% convinced that the Canadian government is going to pay the American tariffs that Trump is threatening to levy.

But that’s not how tariffs work.

If Trump follows through with his threat of tariffs it is not us here in Canada that will pay them. It’s the American consumer that will foot the bill.

A tariff is basically a tax on imports. They are usually used to help out a local industry.

Here’s an example. Let’s say that a country is trying to develop its emerging pineapple industry. The problem is, pineapples are cheap to produce in other countries. So cheap, in fact, that you could import them and still sell them cheaper than a domestically produced pineapple. The government may elect to impose a tariff on these cheap imports, which makes them more expensive, and helps the domestic pineapple industry to compete.

Now we don’t sell cheap pineapples to the Americans, but we do sell them lots of other things. Like oil.

For discussion purposes, let’s say we sell oil to the Americans for $100 a barrel. (This is not the current price of oil, I am just using a round number so the math is easier to follow.) Let’s say Trump imposes a 25% tariff. Now it is the American consumer has to pay $125 for a barrel of oil; $100 to the Canadian producer and $25 in tariffs to the American government.

Why would an American president make life more expensive for Americans? My guess is that it’s a negotiating tactic. Trump wants something, and this is how he is opening the negotiation.

So does this mean that we don’t care about tariffs? Not at all.

If Trump imposes tariffs on the products that we sell to the Americans, those products are now more expensive. Presumably that means we will sell less of them. But the products are not more expensive because we are charging more, they are more expensive because of the new tariff, which the Americans will keep for themselves. Canadian producers do not benefit from these tariffs.

It gets worse. Many Canadian politicians are threatening that we should impose our own tariffs in response. This kind of escalation would probably be inevitable, and it would hurt a lot of people.

The question that I have been getting lately is whether these potential tariffs are affecting people’s investments. So far, the answer is basically no. As I write this, the markets have mostly ignored Trump’s threat of tariffs. In the weeks following the initial threat the markets actually went up, and more recent volatility is attributable to other things.

Will the threats of tariffs actually materialize? Maybe. There isn’t much that you and I can do about that.

What we can do is to stay focused on our own financial objectives. There are things that you will need to do in order to reach your Great Goals in life. Don’t let the potential for future tariffs, or any other noise, distract you from what you need to do.

Brad Brain. CFP, R.F.P., CIM, TEP is a Certified Financial Planner in Fort St John, BC. This material is prepared for general circulation and may not reflect your individual financial circumstances. Brad can be reached at www.bradbrainfinancial.com.