In a tariff war between Canada and the USA with equal tariff percentages, the governments of both countries generally benefit more than the general public, though the overall economic impact is negative for both nations. Here’s why:
1. Tariff Revenues vs. Consumer Costs
- When tariffs are imposed, governments collect revenue on imported goods, increasing their funds. This can be used for stimulus programs, subsidies, or debt reduction.
- However, consumers bear the brunt of these tariffs, as businesses pass the added costs onto them through higher prices.
- Since both countries rely on each other for essential goods (e.g., food, raw materials, automobiles, energy), the cost increases are widespread, impacting most households.
2. Impact on the General Public
- Higher Consumer Prices: Goods affected by tariffs become more expensive, reducing purchasing power.
- Job Losses: Industries dependent on cross-border trade may suffer due to reduced demand, leading to layoffs.
- Supply Chain Disruptions: Many manufacturers rely on components from across the border, causing delays and inefficiencies.
- Lower Economic Growth: Reduced trade can slow GDP growth in both countries, negatively impacting long-term prosperity.
3. Government Stimulus vs. Consumer Burden
- While governments may redistribute some tariff revenues through stimulus payments or business subsidies, these are often not enough to offset consumer losses.
- If stimulus programs are well-targeted, they could help industries most affected, such as agriculture or manufacturing. However:
- Stimulus does not reach everyone equally (some groups may suffer more than they receive in aid).
- Inflationary pressures from tariffs can erode the value of stimulus payments.
- Job losses may not be immediately recovered despite government intervention.
Projection of Stimulus Disbursements
- Governments typically do not return 100% of tariff revenue as direct aid. Some funds may go toward debt reduction or general expenditures.
- If the USA and Canada impose tariffs on each other, both governments gain revenue at the cost of economic efficiency.
- The net effect depends on the magnitude of trade affected. If the tariffs are high and prolonged, the economic damage (lost jobs, higher prices) will outweigh the government revenue.
Who Ultimately Benefits More?
- Governments collect revenue but do not suffer from price increases.
- The general public suffers more due to higher costs, job losses, and economic uncertainty.
- Businesses that rely on cross-border trade are also hurt.
In conclusion, while both governments might see short-term gains in tariff revenues, the general public and the broader economy suffer more in the long run. Tariff wars usually lead to economic slowdowns, making them an overall losing strategy for both countries.