Oh, Canada

Speaker 2

No, I'm Magnus, the economist. If it isn't the dumbest, it comes pretty close to being the dumbest. you know, in the sense that we took a perfectly functional, peaceful allied relationship between the United States and Canada, our northern neighbor, where ⁓ they used to be one of our main trading partners. I it looks to me as that there's no good reason for this other than the president of the United States ⁓ needed a test case to pursue his tariff agenda, and Canada was the victim he picked.

Speaker 1

What role, if any, is Congress playing in this? I has anything gone to the Supreme Court yet? Are we there? I mean

Speaker 2

Well, Congress has been AWOL mostly from the entire tariff agenda, in part because ⁓ Speaker of the House, Mike Johnson, for the first full year of the Trump second term presidency when he's pursuing tariffs, used the House rules to prevent the House of Representatives from voting on anything related to tariffs. ⁓ so he put in this rule and said, Well, it doesn't count toward a like a legislative action day if ⁓ if someone tries to bring up a vote on tariffs, and this is all just to delay and prevent any weighing into that. Now, if we go back in history a little bit, remember Liberation Day in April 2025, that's when Trump rolled out his big tariff agenda and waved those charts around that had all the countries and lists of numbers on it and it set the stock market haywire. ⁓ well the policy that he pursued that under was called the ⁓ International Emergency Economic Powers Act or IEPA. And that came under court challenge because IEPA didn't really say the president could enact tariffs. ⁓ he just implied and tried to infer that from ⁓ AEPA's text. And the Supreme Court about a year later said, No, sorry, ⁓ Mr. President, it doesn't work that way. ⁓ you don't get to use AEPA to impose tariffs. And by the way, you have to refund everything that you collected over the last year, which is almost 200 million dollars. So, where did this new Canada trade war come from in the aftermath of the Supreme Court decision? Trump went statute shopping. ⁓ you know, this is a tactic politicians do all the time. The a more recent famous example, Joe Biden, remember he tried to forgive college student loans in this big sweeping measure, and he tried to cite an emergency power under COVID. And the Supreme Court said, uh-uh, Mr. President, you can't do that. The law doesn't allow that. So he spent the rest of his term trying to find other laws to shoehorn and retrofit this forgiveness agenda into, and the courts. Just kept coming back and knocking it down. Well, Trump's doing the same thing with tariffs and he's found this old clause called section three thirty eight of the Smoot Hawley Tariff Act of nineteen thirty.

Speaker 1

Which is everybody's favorite section and act.

Speaker 2

Yes. Yeah, the Smoot Hawley I i i you know, whenever I bring this up, Smoot Hawley, th the people are thinking where have I heard that it's the Ferris Bueller's day off ⁓ you know, that opening scene where you have Ben Stein, the the teacher that's ⁓ Smoothawley, anyone, anyone, the terror fact of nineteen thirty. In nineteen thirty

Speaker 1

The Republican controlled House of Representatives, in an effort to alleviate the effects of the anyone? Anyone? The Great Depression passed the anyone? Anyone? A tariff bill, the Hawley

Speaker 2

Yeah. Tariff Act which

Speaker 1

Anyone raised or lowered raised tariffs in an effort to collect more revenue for the federal? Did it work? Anyone? Anyone know the effects? It did not work and the United States Great Depression.

Speaker 2

government. Still has some text on the books, and one of them is this section three thirty eight, which has never been used before. It's legally dubious because Congress has changed the law several times since then. ⁓ so section three thirty eight, what it does is it says essentially if another country discriminates against the commerce and trade of the United States. The United States can put in a retaliatory tariff against them of up to fifty percent.

Speaker 1

What constitutes discrimination?

Speaker 2

It wasn't well defined in the Smoot Hawley version. ⁓ you know, they listed some things like ⁓ taxing the commerce of the US, ⁓ putting barriers on to on US exports, ⁓ things like that. But it's but it's a really vague statute. And here's the rub, is decades later Congress kinda recognized and said, well Smoot Hawley thing, this is not an adequate statute. We need to revise our definition of what discrimination means. So in nineteen sixty-two they passed another law called the Trade Expansion Act that specifies what ⁓ discrimination entails and specifies what the president can do. And then they revised that further and add new clauses in nineteen seventy four. So if you ask most trade lawyers, they look at this and they say, well, wait a minute, section three thirty eight, it may have existed on the books in nineteen thirty, but it's long been superseded by all these other clauses. That add the definition in there. And the the conventional court ruling is if the more recent law modifies the language and adds stipulations, you go with the more recent law. You don't go to the old law and pretend that the new one doesn't exist. Well, Trump has a very innovative legal team around him, particular the US trade representative Jamison Greer, who latched onto this old section 338. He's like, you know, this thing that's never been used before. Even though it's probably been superseded by subsequent laws. Let's try that one next. And that's the statute they settled upon to go after Canada.

Speaker 1

In general, has there ever been a good law passed in the nineteen thirties in the United States? Because it just seems like, especially when it comes to economics, every law just seems like a complete horror show. And I guess nineteen thirty is under Hoover. Yeah. And then, you know, when FDR c came around, there was just a a lot of ⁓

Speaker 2

A flurry of them. ⁓ the National Industrial Recovery Act, which is this giant price fixing central planning scheme that gets thrown out in court. Yeah, ⁓ there are very few laws in the 30s that ⁓ I think are are worth anything. ⁓ the one exception ⁓ is in nineteen thirty-four they passed the Reciprocal Trade Agreements Act, and it was an attempt to undo Smoot Hawley. Smoot Hawley was so bad they're like, ⁓ we gotta get rid of this thing. ⁓ so they created this new law that authorized the president to negotiate away Smoot Hawley's tariffs. That's pretty much the only thing I can think of from the thirties that ⁓ is is worth anything.

Speaker 1

And I think just from a a PR standpoint, doing anything that harkens back to President Hoover just seems like a bad idea. 'Cause you know, all you all you think of with Hoover is Hoovervilles and

Speaker 2

He's a he's a man that's not known for his economic ⁓ successes, put it mildly. ⁓ and yet you y you see that being invoked by President Trump. And he wants he I think he's really viewing Canada as a test case here. And of course the rest of the administration is going along. He's like, let's revive section three thirty-eight of Smoot Holly. No one's ever done it before, but we can test it now. That means it's probably going to get a lawsuit in court that challenges it. And I think there are a couple legal angles that that you could go after it. One is that the later laws have superseded it, basically invalidated its clauses. And the second one, this is where it gets really interesting. This is the war side of the trade war with Canada. Because section three thirty-eight said that you can only do this if the other country's discriminating against you. Well, what was the discrimination that Canada was engaged in? And Trump has kind of been all over the map on this. ⁓ he's he's struggled to specify what Canada was doing to the United States that was so wrong that required these tariffs. And you ask him, you always get this ⁓ kind of mumbling, ⁓ trailing off answer that goes into non specifics. ⁓ or they'll invoke ⁓ something like these really obscure clauses of tariffs on dairy products. That are almost never used, ⁓ they ⁓ they almost never come into effect, but were also codified in a previous trade agreement from the very first term of Donald Trump that he himself signed, pointing to problems that he created as the discrimination against the United States. It's a very weird legal territory. And that that that's at least the the the status of the dispute when it flared up again a couple of weeks ago. ⁓ and you had this collapse of of trade negotiations with the Prime Minister of Canada, Mark Carney.

Speaker 1

It sounds like you're preparing another amicus brief. ⁓ yeah.

Speaker 2

That that is neat. I'm a I'm waiting for these tariffs to take effect, then the lawsuit will be filed, and then, you know, I by necessity I kick into gear. I'm I'm one of these weird scholarly characters in the sense I'm I'm one of maybe like half a dozen people who for a ver variety of reasons studies old trade law and old tariff statutes.

Speaker 1

The last case you you ⁓ submitted an an amicus brief. You guys won. Yep. And that saw a lot of refunds going to like Amazon and Walmart. Did you notice your service at Amazon get better? Was there any any thank yous in in the prime ⁓ in the prime department saying thank you, Mr. Magnus?

Speaker 2

Nothing yet. ⁓ you know, I I I I would like that credit. No, no, if they if like a new TV or something showed up on my my porch, I'd be very happy. ⁓ I don't think Amazon's going to do that. ⁓ the one exception is I did get some refunds from UPS on tariffs I had to pay. They were the tariff collector. When the illegal IPA tariffs were put in place and and you can go on UPS's website and FedEx's website. ⁓ so here, listeners, I'll I'll give you a tip. If you ordered something between about April two thousand twenty five and last February, go on UPS or FedEx's website and it tells you instructions on how you could apply for a tariff refund if you had to pay one at the time through them.

Speaker 1

Wow, that's amazing. ⁓ if anybody out there gets a refund, let the show know because we'd love to hear what how much ⁓ how much you got. How ⁓ and now the show becomes a a financial show. It's how you can get how you can get that money back.

Speaker 2

Your twelve dollars back on ⁓ on the curtains that you ordered from Europe.

Speaker 1

mention Canada's dairy industry being used as, you know, an example of discrimination. If that's an example of discrimination, there there must be a ton of countries discriminating against us, right? At this current moment.

Speaker 2

Trump wants you to believe that. You know, at a very fundamental level, he doesn't understand what trade is and or how trade works. So he thinks discrimination is any country that we have a trade deficit with. So if they import more to us and we ⁓ than we export to them, he thinks that we're losing. ⁓ you know, that that's not the case at all. This would be like saying that when I go down to the grocery store and I pay them dollars for my groceries for the week, that I'm losing to the grocery store. ⁓ no, I'm giving the money in return for something that I want and need and use to feed myself. You know, I I want to cook dinner that night. ⁓ so yes, I will pay money for it. ⁓ well the same thing is like if you trade across borders. So Trump thinks if you're giving money to a company in Canada and getting goods in return, you're losing to Canada. ⁓ so there's this this basic fallacy. But then he conflates that one of the things of international trade law is if you look across almost any trade relationship with any country on earth. There are these weird vestigial relics of old protectionism that used to be in place. And what it turns out is somebody back in the nineteen thirties, the cousin of the prime minister, owned a certain company, so they got this little special favor that was hard coded into law and it's never really gone away. ⁓ or you have a very narrow niche sector of the dairy industry that is maintained and lobbied to keep these weird little obscure provisions, even though they're ⁓ you know, they Are almost never invoked. The economic consequence of them is near negligible in the grander scheme of things, but they've never gone away and they're on the books. Well, Trump will seize on those and point to them and say, aha, this is proof Canada's discriminating. This is proof Ireland's discriminating. This is proof Japan's discriminating, because there's some weird vestigial part of trade law that was built around a single industry or a very narrow sliver of products that's almost never invoked, but nonetheless remains on the books. And he's taken that and rammed a truck through it. That's been his big strategy and how he thinks that he can get the section three thirty eight every.

Speaker 1

As much of a patriot as I am for these United States. I love my country. I am very partial to a particular subset of Canadians, and that's Canadian comedians. I absolutely love Canadian comedians who I I think per capita Canada has delivered the greatest comics to ever live, per capita for for sure. And I don't want to go to war with my good friend Scott Thompson from The Kids in the Hall. I don't want to go to war with the kids in the hall. So how can I bring peace, Phil? What what could I do? To ⁓ stop this trade war from becoming a hot war.

Speaker 2

Yeah, yeah. So this is the tricky area we're in. I think the best strategy to, you know, backing down, de-escalating the trade war with Canada, unfortunately, is going to be almost entirely on the United States side. I've made the argument that section three thirty eight is being illegally applied here. I don't think it ⁓ it even has any teeth anymore under law because it's been superseded. I also don't think that the conditions Trump is invoking to use it have been met. In other words, Canada is not engaged in conspicuous acts of discrimination against the United States. In fact, if you look at the pre tariff trade position, Canada had fewer trade barriers against the rest of the world than the United States did. ⁓ they were always ranked higher than us on trade freedom on all of these indexes. ⁓ so if anything, we were the worst offenders. You know, they not Canada would be like with within the top 20. And then here's the United States. We're ranked 61 out of all the other countries on earth, or something like that. It's just kind of like, wait a minute, we're the ones disclaim claiming discrimination here against a country that is actually freer and more open in its trade policy than we are. Something doesn't add up there. And a combination of these factors with the law being superseded means there's a really good chance of defeating this thing in court. So This is my message to, you know, our Canadian friends up north of the border. They're furious, by the way. ⁓ they see Donald Trump is ⁓ I think he's engaged in a unilateral provocation against Canadian trade, where they did very little, if anything, to even warrant or merit this. And I'm sympathetic to that position. Canada was just kind of minding his own business and Trump's like, I want to test my tariffs there. But this has also bred a ⁓ a political push to retaliate in Canada. And a lot of it's this gimmicky style war. So we ⁓ the United States Trump declared he was gonna rename Lake Ontario into Lake America. ⁓ that seems to be his default title. We had the Gulf of Mexico for the Gulf of America. So it's this thing he does. And the Canadians are like, Well, ⁓ well, if you do that, ⁓ we're going to take ⁓ American products off of our short ⁓ our shelves in the store. And they've already kind of been doing this. So in the original round of tariffs, back in Liberation Day, they pulled American booze off of the liquor stores in Ontario, ⁓ as this little tit for tat retaliatory thing. And my message to the Canadians ⁓ is like, yeah, I ⁓ you know, be Bill Clinton, I feel your pain, I know what's going on here, but they're missing a big part of the equation. And one is that Trump's tariffs are deeply unpopular in the United States. There was just a poll that was done on like, do you support the president's trade war? It's like sixty percent of Americans oppose it and only twenty percent support it. Levels of unpopularity that are unprecedented. Like the whole country has united against Trump's tariff policy on ⁓ Canada. ⁓ so the political will to sustain this isn't here for very long. The second thing, if you allow the lawsuits to play out, I think we do win in the end. And the Supreme Court record has been pretty good on this. Remember, they struck down AIPA, the last one. But there's one complication here. The more Canada retaliates against the United States, they become kind of like a self-fulfilling prophet for Trump. They give him the discriminatory measures that he previously didn't have that he's now citing to invoke this clause. So it's a self-defeating strategy. And I'd say this from Mark Carney all the way down the Canadian government. Every time you retaliate, you are now giving teeth to a previously frivolous attack on you in terms of tariffs.

Speaker 1

Well now you have to deliver that message in French. So go for it.

Speaker 2

⁓ My co author, ⁓ Vincent Geloso is a French Canadian American economist. We're collaborating on a few things there and and I'll I'll rely on him to ⁓ to tell the Quebecois tariffs are bad.

Speaker 1

about you know kind of a self-fulfilling prophecy. I remember when President Trump came out and said about Canadians, they're nasty people and when it came out I was like, really? I I didn't know that. Now it's sort of like okay guy, we're gonna be nasty now.

Speaker 2

Right. ⁓ Weirdly, the United States' track record of going to war with Canada is not good. ⁓ it's one of the only wars we've ever lost.

Speaker 1

I did not know that. ⁓ I think that that's purposely ⁓ left out of my history book.

Speaker 2

It it was British Canada at the time and we kind of wrap it into the broader war of eighteen twelve and and we we save ⁓ our saving grace is we ⁓ the Americans won the last battle, but it was the battle of New Orleans. ⁓ it's a whole different part of the country, a different theater of the war. And ⁓ the United States, ⁓ well we won therefore we got the peace treaty. But the there's a whole campaign where the United States tried to invade Canada early in the war of eighteen twelve. And it's the they've actually sacked and burned what is now the city of Toronto. They get repulsed, they get driven out of Canada. And in retaliation, the British Army, which controlled Canada at the time, sacks and burns Washington, DC. They burn down the White House. They burned the Capitol building.

Speaker 1

A bunch of hosers came down

Speaker 2

See it didn't go well for them. And that that's the part that's left out. You know, no one talks about the Washington campaign. They talk about Fort McHenry, ⁓ you know, a few miles up the coast, ⁓ where the Star Spangled Banner and ⁓ you know, the flag survives through the night and we repulsed the British. But you don't talk about, you know, a few weeks earlier what they were doing.

Speaker 1

Well, I'm gonna step up and be a proud American and say none of that happened. I'm a revisionist now and ⁓ and that's it. But on a serious note, ⁓ Canada when especially when it comes to to warfare does not get the credit it deserves in particular when it comes to like World War Two and just s how many men they they sacrificed well before, you know, the United States entered ⁓ entered the theater.

Speaker 2

There are apparently ⁓ there are legendary stories in World War Two of these like hardened Canadians from the Arctic wilderness ⁓ are some of the toughest troops on the Allied side. ⁓ because you're basically pulling people off the frontier deep into the ⁓ the wilderness and they're like, ⁓ what's cold in Europe in winter? And they're like, ⁓ this is just like home.

Speaker 1

You know, something you talked about a little earlier was ⁓ you know the trade war seems to be having an impact on Google Maps. It does. Apparently Lake Ontario is now Lake America. You know, by the time this ⁓ Trump's tenure is over, is there gonna be anything else to rename? Is everything just gonna have America? It's gonna be really hard to get around. It's gonna be very confusing.

Speaker 2

The the America Sea, the America River, the America Ocean, Lake America, Gulf America, Mount America. I'm sure that's that seems to be the trajectory we we're on. And, you know, we look at this Lake Ontario thing, first of all, it's a gimmick. ⁓ and it is Trump being petty, it's Trump being stupid, it's Trump ⁓ r you know, at some of his worst instincts. ⁓ and I think this is why people are looking at it, they're just kind of rolling their eyes. ⁓ like no one who lives on Lake Ontario on the American side is going to start calling it Lake America. ⁓ they're just biding their time because I think everyone knows as soon as he's out of office, ⁓ the next president will say, Yeah, that was stupid and we'll change it. And we know this, Ashley, because all sorts of historical precedents exist where presidents for other reasons have renamed things. And the irony here, one of the last to do this was Barack Obama. There's this mountain in ⁓ in Alaska. ⁓ it's the tallest mountain in the state, one of the tallest on the continent, Mount McKinley. It's also known by Denali was the ⁓ indigenous name for it and is the name for the national park. And Obama during his presidency signed an order to say, Well, we're going to rename Mount McKinley Denali. ⁓ even though both were used ⁓ simultaneously. He invented a a problem that wasn't a problem. And then well what what happened? Well Trump came into office after him. He's like, well I'm gonna sign an order and reverse that. So it's just the this back and forth for political reasons. And the other irony here is Trump lambasted Obama when he changed names, ⁓ Mount McKinley, and says, ⁓ the president shouldn't be able to do this with a stroke of a pen. And and here you are ⁓ a decade later and Trump's Doing the exact same thing. And I'm sure the next Democrat president will do that. And I'm sure the next Republican will do that. ⁓ now I I think there's a case that Trump has been pettier than some of these predecessors, but he's using the same tool that those predecessors did. And there's an unfortunate economic consequence because when the US Geological Survey is ordered to rename something, it doesn't affect private references to it. People are still gonna call Lake Ontario Lake Ontario. But what it does do is it means that the federal government will now have to update its maps and its signs and ⁓ its paperwork. And you know, that turns out it costs money. Costs money to swap out all the signs in the national park next to the mountain that's been renamed. It costs money to ⁓ update printed navigation maps that the government for a variety of reasons still maintained. it also costs money to rename the defense department, the Department of War. There was another renaming it in. That means that every stupid sign on the Pentagon has to be pulled off and replaced by a new one that has the new title. And pretty soon that starts to add up in in terms of money. So you're you're just wasting taxpayer dollars for stupid, frivolous things.

Speaker 1

The ones who really win out on this are the cartographers and map enthusiasts. They must be loving this. Big map is loving this. And we are loving it too. We have been Happy America Econ. The president has changed the name of our podcast to stay on theme. We'll see you next week for a whole new episode of Happy America Econ.