U.S. trade war with China risks global fallout, says McGill economist
By William Crooks
Local Journalism Initiative
The escalating U.S.-China trade war is shaking the global economy—and Canada may find itself caught in the middle, according to Julian Karaguesian, a faculty lecturer in McGill’s Department of Economics and former senior advisor with the federal Ministry of Finance. With over two decades of experience in international trade and finance, including postings in Berlin and Washington, Karaguesian warns the current trade tensions are anything but ordinary.
He characterized the United States’ current strategy toward China as a combination of irrationality, deliberate realignment, and tactical pressure. “It’s part mad king, part I want to realign the global trade system, and part negotiations,” he said. The tariffs now in place—as high as 125 per cent on some imports—have made trade between the two economic giants prohibitively expensive. While U.S.-China trade totals roughly $600 to $650 billion, the impact of these policies is far more widespread. These two nations are embedded in hundreds of global supply chains, he explained, and placing barriers between them disrupts far more than direct imports and exports.
To illustrate the complexity, Karaguesian pointed to Apple’s international operations, where design, marketing, and component production span over 30 countries, with final assembly taking place in China. “It’s assembled there, and then it’s ferreted around the world,” he said. Tariffs, in his view, are “like an earthquake under the global supply chain.”
He argued that the current protectionist wave did not originate with Trump. “The border with the United States has been thickening since 9/11,” he said, referencing shifts under George W. Bush, Barack Obama’s Buy American measures, and the quiet but firm protectionism under Joe Biden. Trump’s approach, he suggested, simply made the underlying trend more extreme. “He’s using a blunt kind of hammer-like policy instrument.”
Karaguesian believes Trump genuinely wants to bring jobs and industries back to the United States but doubts the practicality. “To do what China does, you need a physically fit and mentally fit workforce,” he said. “The old notion of China is an anachronism… they’re not making cheap stuff in sweatshops anymore.”
He recalled seeing China’s high-speed train system in action: “They’ll get you from Beijing to Shanghai—1,500 kilometres—in four hours on the latest rail technology.”
Karaguesian sees Trump’s populist economic message as a reaction to the fallout from deindustrialization in the U.S. and Canada. “The lie that was told by Clinton and Blair was that these were unskilled jobs,” he said. “Of course, they’re very skilled. I’ve been in factories, I’ve seen how skilled the workers are.” Once lost, he warned, that knowledge doesn’t return.
He linked the decline of manufacturing directly to the opioid crisis in the U.S. “If you look at a map of the Rust Belt and a map of the epicentres of the opioid crisis, they overlap almost totally,” he said. For years, he argued, cheap credit obscured the damage. “Everybody could get a car, a credit card, a college loan.” But that illusion collapsed with the 2008 financial crisis.
In the wake of that collapse, populist movements emerged, and Trump, Karaguesian said, tapped into the resentment. “He says, ‘I’ll be your Captain Ahab. I’ll be the eye of your reach. We’re going to go and hunt Moby Dick—the establishment.’”
Canada, he noted, has become entangled in the consequences of American trade policy. When the U.S. announced 100 per cent tariffs on Chinese electric vehicles last October, Canada quickly issued a similar measure, even though it didn’t import any Chinese EVs at the time. “It was the colonial master giving the order and the vassal state complying,” he said.
China initially held back, but after Foreign Minister Mélanie Joly floated aligning Canadian tariffs with the U.S., the response was swift. “The next day, China put tariffs on our agricultural products,” Karaguesian said. “They’ve told us—politely but clearly—that if we keep following the Americans, they can hit us with a lot more.”
He sees serious risk for Canadian farmers, particularly small family operations in places like the Eastern Townships. But he also sees an opening. If Canada negotiated independently with China, perhaps limiting EV imports or establishing quotas, “they would take their tariffs off our foodstuffs immediately.”
Karaguesian described test-driving a Chinese EV in Paris that left a strong impression. “I liked it better than a Tesla,” he said. “It felt substantial… and they can put one on our roads for $15,000.”
He also noted that China has indirectly offered new markets for Canadian produce. “They’ve told us that you can export more fruit to Australia if you want. We’ll take as much as you have.”
Closer to home, he believes Quebec is well-positioned to weather the tensions. “Why go down to New Hampshire when you can stay here?” he said. “There’s a lot of locally made products, local travel. I think that’ll be a big boon.”
He added that Quebec is less reliant on trade with the U.S. than Ontario, and its major exports—electricity, foodstuffs, and aluminum—are harder for the U.S. to replace. “Sixty per cent of American aluminum imports come from Quebec,” he said. “They don’t have any local aluminum.”
By contrast, Ontario has already seen its auto production fall from three million to 1.3 million vehicles per year. “The Trump people want the entire American auto sector in America,” Karaguesian warned.
While he believes some tariffs—especially on aluminum and automobiles—might eventually be reduced, he sees larger risks looming. “If this trade war with China escalates, it’s going to lead to a global recession,” he said. “And it could re-ignite inflation. All these tariffs are going to drive up prices.”
Canada, he concluded, needs to assert its own strategy. “If we just keep copying what the U.S. does, we risk losing both our autonomy and our markets.”