U.S. President Donald Trump’s leadership style is hard to pin down precisely.  However, there is no doubt he embraces elements of the chaos theory of leadership.  Such a leadership style disrupts norms, often creating instability that forces others to react. It thrives on constant tension and embraces conflict as a way to maintain control over the narrative.  Chaos theory suggests that disruption is necessary for growth. Trump’s entire political playbook is built on disrupting the status quo—in politics, trade, media, and even diplomacy. He often uses chaos as a tool to drive change.

 

Many people are not wired for this type of government leader and instead react emotionally instead of rationally.  This is exactly what a leader who deploys chaotic leadership tactics is relying on and will often take advantage of such reactions by looking for opportunities within such an obvious emotional response.

 

In the Canadian realm, the imposition of tariffs by Trump certainly fits the mould as described above.  One day the threat of tariffs are on. The next day they’re off.  Then they’re imposed.  Then they are somewhat relaxed.  Then some of the tariffs are back on and at a much higher level.  And it goes on. With a leader that embraces elements of chaos leadership, you can expect it to continue. And highly charged emotional responses too.

 

Much has been written about the devastating impacts that the U.S. tariffs – and the retaliatory Canadian response – will have on our Canadian economy.  But what about taxation impacts?  Make no mistake about it, tariffs are a tax and their impact will be felt much more broadly than just higher prices at the checkout counter.

 

How are tariffs and tax related?  Well, let’s unpack that.

 

Tariffs act as a hidden tax on imported goods.  When the U.S. imports our Canadian products, the purchaser must absorb or pass that extra cost along to the eventual consumer.  If the purchaser will not do so, well, that results in less sales for the Canadian vendor.  Which in turn leads to less corporate tax (if the vendor is a corporation) or personal tax (if the vendor is an individual) for our country.

 

When Canada imports goods from the U.S. that are subject to retaliatory tariffs, the same applies in reverse.  In other words, the Canadian purchaser will now pay more for the imported goods with such costs eventually passed along to the Canadian consumer.  If the Canadian purchaser is not willing to pay the extra costs, then the U.S. vendor will be hurt.

 

For example, consider Canadian softwood lumber: a U.S. tariff hikes the price for American builders. They buy less, Canadian mills earn less, and Ottawa collects less tax. Flip it, and Canada’s tariffs on U.S. steel do the same in reverse.

 

And, finally, if Canadian businesses are negatively impacted by the tariff war, a response to this could be the lay-off of many employees.  The impact on the federal and provincial governments will be less personal taxation receipts.

 

Some provincial governments’ recently released budgets are already anticipating reduced taxation revenues as a result of the tariff war.  For example, in resource-rich Alberta, a deficit of over $5 billion is being conservatively planned for in the coming fiscal year as a result of expected reduced taxation revenues.

 

If government deficits – meaning increased government debt – increase as a result of tariffs, then one can obviously question how such deficits and its related borrowing costs will be paid for.  Our current federal government has historically taken a tax and spend approach so one can certainly expect a Liberal Party-led government under Mark Carney to continue to do so.

 

Given Mark Carney’s track record of pushing climate agendas at the Bank of England and the U.N., my prediction is that a Mark Carney-led federal government would massively increase spending (but hidden under his proposal to separate “operational budgets” from “capital budgets”).

 

Such spending would be rolled out using some sort of lame justification being “targeted relief” to affected Canadians. In addition, massive new subsidies would be introduced for Mr. Carney’s favourite ideological pet projects all in the name of trying to create new jobs for a “greener future”.  If my predictions come true, that would be disastrous for Canada.

 

Why? Well, the last thing we need right now is continued inflationary handouts.  Instead, we need to find ways to support our overall Canadian businesses and risk-takers and incentivize those who want to work hard (which will certainly be required during these tumultuous times).

 

From a taxation perspective, we need big ideas and big thinking which means our country needs tax reform to explore those big ideas and bring them to fruition.  Quickly.

 

One of the key objectives of such tax reform should be broad-based taxed reductions to incentivize our Canadian businesses and workers and to prepare for the inevitable next shoe to drop from the U.S. administration, taxation wars. It’s clear that tax reform is coming from the U.S. which could make Canada even less competitive. The time to react to that is now.  Not after.

 

Like Trump’s chaotic tariff maneuvers, Canada’s tax system has become a labyrinth of complexity, unintended consequences, and knee-jerk political reactions. But chaos, as stated above, can be a catalyst for necessary change and opportunity. The real question is whether our leaders will grab the opportunity or let emotional responses consume them.

 

As Niccolò Machiavelli aptly put it, “Never let a good crisis go to waste.” Canada’s taxation crisis—exacerbated by economic uncertainty, bloated bureaucracy, and impending U.S. tax reforms—demands bold leadership, not more dithering and simple emotional responses.

 

The monthly melodrama of tariffs being on, off, and on again is a distraction from the real issue: Canada must fix its own house. Instead of reactive, piecemeal responses, we need a tax system built for growth, not political gamesmanship.

 

Canada can keep sleepwalking through economic decline, or it can wake up and fix its broken tax system. The choice is ours—but the clock is ticking.