The threats of US President Donald Trump on customs duties have not disappeared.
Before after assuming his post in his second term, Trump threatened to impose a 25% comprehensive customs duties on all goods that enter the United States from Canada and Mexico, in addition to targeting Chinese exports.
He has provided a variety of reasons for justifying commercial attacks against other countries, from claiming that they will fund massive tax cuts in the United States to tightening restrictions on the borders of North America.
But what are the customs definitions specifically, which is the commercial tool that Trump described as “the most beautiful word … in the dictionary”?
Here is what you need to know about how customs definitions work, how they affect economies, and why governments use them.
The customs tariff is a tax imposed on goods or services coming from another country.
For example, the United States has previously imposed Canadian soft, steel and aluminum taxes, which can be materials used by American furniture or car companies.
During that period, if the furniture maker wants to import Canadian wood, he will have to pay a tariff – expressed as part of the sale price of the commodity, such as 10 or 25 percent, or as fixed fees in dollars – to enter it into the market. The country.
If the value of the imported commodity is $ 100 at the point of sale and faces a 25 percent tariff upon entering the country, it will cost $ 125 for the buyer, with the additional $ 25 to the government.
This makes importing the commodity subject to customs tariffs more expensive for business. They can choose to include the highest cost of that customs inputs at the final price of the product they sell, or they can find alternatives to avoid importing the element in the first place.
By floating his last tour of the definitions, Trump pledged to create an external revenue circle to collect tax revenues.
“Instead of imposing taxes on our citizens to enrich other countries, we will impose customs duties and taxes on foreign countries to enrich our citizens.”
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But it is the companies that import the goods subject to customs tariffs that pay the tax, and they pay them directly to their government, which imposed the tariff.
Mahmoud Nanji, a policy fellow at Evi College of Business Administration at Western University, told Global News that some companies may negotiate agreements with suppliers so that the final price of the commodity is proportional to the cost of export associated fees.
But he says that the importer – the company within the country that imposes a customs tariff – is the one that usually pays the cost of customs tariffs.
“While the government that it imposes collects the definitions, the definitions are not paid by another,” he says. Canadian export development site.
What do the definitions of the government do?
Nanji says there are some reasons that may make Trump, or any government, wanting to impose a customs tariff.
The first is to increase revenues. Tar tariffs can be used to support government treasures, or pay new services or tax cuts.
Trump pledged sharp tax discounts during the 2024 campaign, and said he would use definitions to finance them.
Customs definitions can also protect the local industry from external competitors.
If an American company stops obtaining soft wood from a Canadian resource thanks to the high costs of customs tariffs, it may resort to another American company – if it can – to obtain a similar product, thus enhancing the local economy.
Finally, the customs tariffs can be used as a negotiating tactic to secure other concessions from a commercial partner.
For example, Trump expressed his concerns about the flow of fentanel across the northern border and criticized Canada’s failure to fulfill the obligations of NATO spending.
Canada, the United States and Mexico are also scheduled to re -negotiate the CUSMA Commercial Agreement in 2026, as Nanji refers to customs duties as an opening shot in those renewable commercial talks.
“I think it uses definitions as a pressure method to get a better deal,” he says.
Trump said the proposed customs duties “have nothing to do with” by re -negotiating CUSMA.
How does the economy respond to definitions?
Economists at RBC Francis Donald and Wathin Janezen He formulated a guide on how customs definitions affect industries and consumers.
Before applying customs tariffs actually, the fear of commercial restrictions may push buyers in the country that imposes customs definitions to store goods that may cost more before the deadline. Donald and Janzen wrote that this could actually witness a temporary increase in commercial activity before activating customs tariffs.
But as soon as they are applied, the demand for commodities subject to customs tariffs diminishes because it costs more money for import works.
Some may continue to buy from the country subject to customs tariffs if they can absorb high prices, perhaps by passing these costs to consumers, while others may try to find a resource in their country that can save the same goods.
Ultimately, companies whose customs duties have been imposed on their products are likely to be subjected to a sales strike. In the case of emptiness, this harms the economy of the country facing customs definitions.
Economists have warned that the tariff war between Canada and the United States would harm economies on both sides of the border and may lead to recession in the north of the border. It is expected to lose jobs, especially in industries that rely heavily on trade with the United States
Donald and Janzen notes that some of the most vulnerable sectors are those that have highly integrated supply chains such as the auto industry, where the Canadian US border spare parts can cross several times, and thus can face customs tariffs again and again.
The threats to the imposition of customs duties also led to the weakening of the Canadian dollar in recent months, as investors pump money to the United States instead.
The effect of customs definitions can be reduced through financial stimulation from the affected country, which may similarly respond with retaliatory definitions.
What is the dollar tariff against the dollar?
Revenge definitions will apply the same mode described above, but in the opposite direction.
In the case of Canada and the United States, Canadian companies will pay customs duties on the damaged goods that are brought in the north of the border, and the government will get an increase in revenue, and consumers may end up paying more.
Prime Minister Justin Trudeau said that “the identical definitions of the dollar against the dollar” are among the options on the table to respond if the United States imposes customs definitions as it threatened.
Nanji says that the “dollar against the dollar” aspect of revenge definitions may be difficult to analyze the numbers, depending on the way the original definitions are implemented.
But for example, if the United States imposes customs definitions worth $ 100 billion on Canadian goods in a specific time frame, Canada will similarly respond by imposing customs definitions on American goods or services that will also generate $ 100 billion.
The size of the Canadian economy is approximately ten, which leads to a significant impact in the event of customs definitions on the dollar against the dollar.
One of Trump’s other criticism of the commercial relationship between Canada and the United States is that Canada has a trade surplus with the United States. This means that Canada comes from its goods and services to the United States during a certain period more than it imports.
Trump said that this amounts to the “support” of the United States of Canada, but Nanji says this is not the same.
He explains that with the relative size of the Canadian economy and the “uncomfortable US appetite” for Canadian natural resources, the trade surplus is almost unavoidable.
However, if Canadian energy is removed from the equation, the United States will have already a trade surplus with Canada, and it already runs a surplus when it comes to services, Nanji says.
“When we think about support, it is usually transferring money from government to another government.
“Anyone who tries to equal this, as he is actually trying to equate something that is considered a false equation.”
