The 15% solution?

I have now listened to more than a dozen podcasts and audio articles about the breakdown in trade negotiations between Canada and the United States, and none of them mentioned Trump’s desire to use tariffs as a tax on Americans to help reduce the massive federal deficit.

As I have discussed here many times, Trump has been more transparent on this issue than on almost any other. He wants to use tariffs to eliminate the deficit, pay down the $40 trillion in debt and issue $2,000 rebate cheques to all Americans except the ultrawealthy.

The wrinkle is that he says foreigners pay the tariffs. All he has to do is convince enough Americans that this is true, and he can get his “tax” through.

Before the Supreme Court struck down his tariffs, the U.S. was on track to raise about $350 billion in 2026—not even close to the $2.1 trillion deficit, but a start. Imagine if he began imposing 15% tariffs on imports from Canada and Mexico. There are lots of variables, but, at a high level, Canada exports around $450 billion worth of goods to the U.S. and Mexico exports $550 billion, so that would notionally be worth another $150 billion.

The U.S. imports only about $3.5 trillion worth of goods each year, so a blanket 15% tariff would raise only $525 billion—again, just enough to scratch the surface of the $2.1 trillion federal deficit.

My point is that, if it is true that U.S. consumers mostly pay the tariffs, why not propose a blanket 15% tariff, as with the Europeans et al.? If you know Trump wants to tax his people but also knows that 50% tariffs won’t raise much revenue because no one will pay $70,000 for a Honda built in Canada, maybe he takes the 15% and goes away.

Of course, the appetite grows with the eating. I could easily imagine Trump levying another 10% next year and another 10% the year after that—up to the point at which it reaches the peak of the Laffer curve.

I understand that Canadians want free trade, or free-ish trade, with the Americans. As I have said, it has worked out well for the Yanks, as they have benefited from huge surpluses in talent movement, investment flows, services trade and so on. But if Trump is determined to use tariffs as a proxy for a national tax on goods, is there a level we would support? Would we support 15%? Don’t the Americans pay it anyway?

Maybe Carney’s crackerjack team should stress-test a blanket 15% tariff to see which industries would be hardest hit. Would the Americans absorb it? Would currency fluctuations offset some of it? Remember that, in the 1970s, the Canadian dollar was worth more than the U.S. dollar. Would a wave of U.S. competitors spring up just to capture that 15%, even as they struggled with growing labour shortages and rapidly escalating operating costs?

I know the argument is that a 15% tariff wipes out a Canadian company’s profits. But that assumes the company pays the 15% over time. If you are arguing that the U.S. consumer pays, how can you also argue that the Canadian company pays?

I want free—or free-ish—trade with the Yanks. I think it is best for both sides. But I can’t get this idea out of my head: Trump wants to use tariffs as a backdoor tax on Americans to at least begin reducing the federal deficit.

As we have discussed here many times, there are basically only three ways to eliminate a government budget deficit: raise tax rates, reduce spending or grow the economy and generate organic tax revenue growth—or use some combination of the three. There are indirect methods, including tariffs and inflation, but they amount to the same thing: a tax.

Speaking at the World Economic Forum in Davos last year, Howard Lutnick said the U.S. economy would exceed 5% real GDP growth in the first quarter of 2026 before accelerating to 6% later in the year. If the economy achieved those rates of organic growth, combined with spending restraint, it would help reduce the deficit.

But most economists expect actual real GDP growth of around 2% to 3%, and the most recent data casts doubt even on those numbers.

I’m not advocating for the 15% tariff. I’m suggesting that it might be better than a patchwork of 50% here and 50% there, ongoing escalations, late-night tweets and threats.the actual real GDP growth expected by most economists is around 2-3% and the most recent data casts doubt even on those numbers.

I’m not advocating for the 15%. I’m suggesting that it might be better than a patchwork of 50% here, 50% there, ongoing escalations, late night Tweets and threats.