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Escalating Trade War Between Allies: United States vs. Canada

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In recent months, the U.S. has escalated its trade conflict with Canada. On August 22, 2026, the U.S. imposed a 50% tariff on $20 billion dollars of Canadian goods. On September 8, Canada retaliated by enacting tariffs on a similar value of U.S. goods.  On September 29, the U.S. responded by imposing import bans on 1 billion of Canadian goods.

These new trade barriers include both tariffs and import bans.  What are these policies?  What are their economic impacts?  Which goods are the targets?  Who are the winners and losers?  Is the U.S. better off as a whole?  This article will address these questions.

Tariffs and bans

A tariff is a tax imposed by the government of a country on goods imported from another country.  An import ban is a complete government restriction on imports of specific goods.

Economic impacts

The economic impacts of trade wars are complex and broad reaching. There are three direct effects.  First, tariffs increase the costs for importing businesses who pay the tax on imports.  In most cases, these businesses then pass on this higher cost to consumers in the form of higher prices for their goods.

Import bans also increase the cost of goods.  This cost increase occurs because bans eliminate market competition and reduce the availability of goods.

Second, tariffs increase the expenses incurred by domestic businesses who rely on imported intermediate goods.  Intermediate goods are goods used to produce other goods. Examples include raw materials such as steel and parts such as plastic components.

Third, tariffs often result in retaliation from the trading partner.  As a result, tariffs reduce demand for a country’s exports when their trading partners impose their own tariffs in retaliation.  For example, U.S. tariffs reduce demand for U.S. exports in Canada when Canada retaliates.

Target goods

The goods affected by the recent U.S. tariffs, Canadian counter-tariffs, and U.S. import bans span a range of industries.

Examples include:

    • Industrial materials such as steel and aluminum, lumber and wood products, pulp and paper, and plastics
    • Agriculture and food such as dairy and molasses
    • Direct-to-consumer goods such as alcoholic beverages, appliances, electronics and motorcycles

Winners and losers

The U.S. initiated the trade war with Canada.  So, it’s worth asking, who are the winners and losers in the U.S.?

Losers:

    • Businesses who import final goods subject to the U.S. imposed tariffs and import bans
    • Businesses who import intermediate goods such as raw materials and parts subject to the U.S. imposed tariffs and import bans
    • Businesses who export goods that are subject to the retaliatory tariffs imposed by Canada
    • Consumers who face higher prices passed on from the three types of businesses described above

Winners:

    • The U.S. government who collects the revenues from the U.S. imposed tariffs
    • A small subset of U.S. businesses who can now compete in the U.S. market with the higher priced taxed imports

Is the U.S. better off?

Is the U.S. better off as a whole because of the tariffs and bans?  In other words, what are the net effects if we add together the effects on winners and losers?

From this macro view, the net effect of the trade war on the U.S. is negative.  In other words, the negative effects exceed the positive effects.

Furthermore, from this macro view, tariffs result in a transfer of money from U.S. businesses and consumers to the U.S. government in the form of the tax revenues.

When tariffs continue over time, the increased costs to businesses and increased prices to consumers put upward pressure on inflation.  Inflation then further erodes the purchasing power of consumers and businesses.

What’s next?

You may wonder then, why would the U.S. government impose these new tariffs and bans if the aggregate economic effects are negative?  Will the U.S. Supreme Court rule that the recent U.S. tariffs against Canada are illegal?  Future posts will explore these questions.

For more information: 

Citation:

Smith, Pamela J.  (2026, November 2).  Escalating trade war between allies:  United States vs. Canada.  The Curious Trade Economist.  https://pamelajsmith.com/trade/escalating-trade-war-between-allies-united-states-vs-canada/2026/

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Intellectual Property Protections of Genetically Modified Organisms: Implications for Technology Transfers

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This chapter examines intellectual property protections of genetically modified organisms (GMOs).  Specifically, I consider how country differences in intellectual property rights (IPRs) affect transfers of GMO technologies both within and across countries.  While country-level research on IPRs and technology transfers is located prominently in the International Economics literature, research on GMOs is in the Agricultural Economics literature.  These literatures have evolved independently with few linkages.  Thus, I begin by identifying stylized facts from these literatures and consider the implications of these stylized facts for GMO adopting countries.  Second, I examine country-level data on GMO land use, trade, regulations, and IPRs to identify patterns of economic behavior consistent (or inconsistent) with the stylized facts.  Third, I develop a framework that characterizes transfers of GMO technologies both within and across countries which differ in their strength of IPRs.  This framework accounts for the unique characteristics of the GMO technology including self-replication and diffusion of the technology by acts of nature.

Citation:

Smith, Pamela J.  2024. Intellectual property protections of genetically modified organisms:  Implications for technology transfers.  In Handbook of innovation and intellectual property rights:  Evolving scholarship and reflections, ed. Walter G. Park, 342-373.  Cheltenham, UK:  Edward Elgar Publishing.

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How do copyrights affect economic development and international trade?

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This article analyzes the effects of copyrights on economic development and international trade. First, we apply an aggregate production function to examine the effects of “copyright-related capital” (CRC) on development. This form of capital includes personal computers, servers, and bandwidth, which embody or transmit copyrighted materials. Second, we apply the gravity model of international trade to examine the effects of copyright policies on bilateral trade in core copyright industries. Third, we integrate the above frameworks to examine the two-stage effects of copyrights on development, and then on trade. We analyze these relationships using cross-sectional data for a large sample of countries. The findings show that a country’s CRC contributes positively to its economic development. The findings also show that the relative harmonization of copyright policies between countries has a positive effect on bilateral trade in core copyright industries. Finally, the findings show evidence of a two-stage process where a country’s CRC contributes positively to its economic development (stage 1), which then contributes positively to its trade (stage 2).

Citation:

Smith, Pamela J., Omar B. Da’ar, Kevin H. Monroe, Fabricio X. Nunez, and Charlotte J. Tuttle.  2009. How do copyrights affect economic development and international trade? Journal of World Intellectual Property 12 (3): 198-218.

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Are GMO policies “trade related”? Empirical analysis of Latin America

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This paper empirically examines whether GMO policies are “trade related” for countries in Latin America (LA). First, we use the Balassa index to assess the “revealed comparative advantage” of LA countries. We find that LA countries have a revealed comparative advantage in GMO industries relative to the world, and that intra-regional trade in these industries is modest relative to external trade. Second, we estimate the Gravity model to examine the effects of importers’ GMO policies on Argentina and Brazil’s bilateral exports of soybeans and maize. We find that strong GMO policies in importers have a negative effect on Argentina’s bilateral exports of soybeans (an industry and country with historically high GMO content). Further, we find that past GMO policies are a strong determinant of Argentina’s future bilateral exports, and that the negative trade effects of strong GMO policies are increasing over time. In contrast, we find a weaker relationship between the GMO policies of importers and Brazil’s bilateral exports (consistent with Brazil’s more recent increases in GMO content). These findings for Argentina and Brazil provide a benchmark for other developing countries that are looking for guidance on servicing trading partners with diverse GMO policies.

Citation:

Smith, Pamela J., and Erik E. Katovich.  2017.  Are GMO policies “trade related”?  Empirical analysis of Latin America.  Applied Economic Perspectives and Policy 39 (2):  286-312.

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Determinants of comparative advantage in GMO-intensive industries

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This paper examines the supply-side determinants of international trade in crops that are intensive in genetically modified organisms (GMOs). The theoretical framework is a variant of the Heckscher-Ohlin model which we estimate using cross-country data for 1995 and 2010 to examine soybeans, maize, and cotton trade. The data include measures of country land endowments which we disaggregate into GMO and non-GMO components, as well as recently released measures of GMO regulations. Findings show land endowments are a primary source of comparative advantage in GMO intensive industries before and after the advent of GMOs. Further, an increase in a country’s allocation of land to GMO crops has a positive effect on her net exports in GMO intensive industries. This positive effect occurs both across countries and time. Finally, a country’s GMO regulations have a negligible effect as a supply-side determinant of comparative advantage. However, a country’s decision about whether to adopt GMO technologies does matter to trade. These findings are robust with respect to a variety of considerations.

Citation:

Smith, Pamela J., Bolormaa Jamiyansuren, Akinori Kitsuki, Jooyoung Yang and Jaeseok Lee.  2018.  Determinants of comparative advantage in GMO-intensive industries.  The World Economy 17 (3):  427-449.

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How does TRIPs compliance affect the economic growth of developing countries?: Application of the Synthetic Control method

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This paper examines the effects of intellectual property rights (IPRs) on the economic growth of countries, with special attention to developing countries.  We examine both the strength of countries’ IPRs, as well as their compliance with the 1995 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) of the World Trade Organization.  Our theoretical framework is a growth model which distinguishes capital as physical capital, human capital and intellectual property.  Our methods include panel regression techniques, plus a novel Synthetic Control method.  The latter is valuable for examining policy effects in research situations where data are limited to small sample sizes; and where reverse causality and heterogeneity are concerns.  The Synthetic Control method allows us to assess the impact of TRIPs compliance on economic growth relative to a counterfactual of what would have occurred in the absence of compliance.  The results show that while select developing countries experience growth benefits from complying with the TRIPs agreement, others do not, supporting the notion that there is a wide range of heterogeneity in the effects of IPR reforms on growth.  These findings are robust when we account for marginal institutional changes in IPRs, enforcement of IPRs, and technological capacity in developing countries.

Citation: 

Smith, Pamela J. and Sebastian J. Anti.  2022.  How does TRIPs compliance affect the economic growth of developing countries?:  Application of the Synthetic Control method.  The World Economy 45 (12):  3873-3906.

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Intellectual property rights and trade: The exceptional case of GMOs

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This paper examines how foreign intellectual property rights (IPRs) affect US bilateral exports of genetically modified crops (GMOs). We apply the structural gravity model to examine GMO trade between the United States and the countries that comprise the rest of the world. Our econometric method includes the Poisson Pseudo Maximum Likelihood estimator. We use panel data including measures of countries’ IPR regimes, plant patentability, plant variety rights, GMO regulations and asynchronous approvals of GMOs. Results show the United States tends to export fewer GMO crops to countries with strong IPR regimes, plant patentability and plant variety rights. These results are consistent with the market power effect, where the United States restricts exports to countries with strong protections to extract monopoly prices. Second, enforcement of IPRs strengthens the market power effect. Third, the market power effect is strong alongside with GMO regulations and asynchronous approvals. Fourth, the market power effect is larger for self-pollinating crops vs. hybrids. These findings are robust across a variety of specifications. However, we also find a price premium in countries with less ease of US market access, with more domestic production of GMOs, and with weak traceability requirements. These features play a stronger role than IPRs in determining price.

Citation:

Smith, Pamela J., and Xiangwen Kong.  2022.  Intellectual property rights and trade:  The exceptional case of GMOs.  The World Economy 45 (3):  763-811.

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Patents for self-replicating technologies: Game theoretic analysis of genetically modified seed

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This paper examines the implications of patents for farmers’ decisions to use genetically modified (GM) seed versus traditional non-GM seed. We consider a game theoretic approach employing the replicator equation to assess the conditions for farmers’ adoption decisions. The results show that farmers may choose GM seeds even when this decision leads to lower profits than using traditional seeds. This result emerges because of the self-replicating characteristic of the technology of seeds and their dispersion via acts of nature and/or intentional infringement. This result is robust across our baseline model and extended model that includes the option for farmers to intentionally infringe upon the GM seed technology. This result is also robust with respect to a wide range of initial conditions and parameter values representing economic conditions including the dispersal of the GM technology, monitoring effort, payoffs of GM seed relative to traditional seed, cost of patent infringement, cost of contamination, and added cost of legally using GM seed.

Citation:

Smith, Pamela J., and Andrew R. Tilman.  2020.  Patents for self-replicating technologies: Game theoretic analysis of genetically modified seed.  Journal of World Intellectual Property Rights 23 (3-4):  166-184.