Canada Stands Tall

Written by Paul Siluch
March 7^th, 2025

“An alliance with a powerful person is never safe.”

• Phaedrus (Plato’s Dialogues)

We are living 2018 déjà vu all over again.

In June 2018, the United States imposed 25% tariffs on steel and 10% on aluminum for the EU, Canada, and Mexico. Other tariffs landed on India and China. Canada, India, and China imposed retaliatory tariffs a month later.

In 2025, a new round of tariffs hit Canada, Mexico, and China. Canada is cancelling billions in U.S. contracts while China struck back with a 15% tariff on US soybeans as well as a ban on US lumber.

The restrictions on US food exports are from China’s 2018 playbook. The ban forced the U.S. to bail out its farmers after their sales collapsed.

Canada’s potash exports to the US are now subject to 25% tariffs as of this week. This is probably not a good idea. US farms buy approximately 80% of Canada’s potash (Government of Canada) and export up to 65% of their produce:

Some of the reasons for the US tariffs are economic, as President Trump wants jobs and trade to move to America. Other reasons are non-economic, such as drug smuggling and illegal border crossings. These are much harder to address through trade barriers, but tariffs are the sledgehammer being used to solve every problem today.

"To jaw-jaw is always better than to war-war."

• Winston Churchill

Countries immediately began negotiating when the first tariffs were announced in 2018. This strategy was successful for Canada and Mexico when sanctions were lifted in May of 2019.

Negotiations, even with a difficult adversary, can work. The issue today is what, exactly, the administration wants, as well as the growing rancour between our leaders. Canadian and US politicians are lobbing personal insults at one another, which may feel good in the moment.

When your opponent is ten times your size, however, negotiations are probably a better option.

"He who knows when he can fight and when he cannot, will be victorious."

- Lao Tzu

Most of the 2018 tariff wars ended in 2019 after the USMCA (the new NAFTA agreement) was concluded. The pain to North American economies became too great.

Do Tariffs Work?

Tariffs on goods arriving from China from 2018 through 2020 generated $61 billion in tax revenue.

However, U.S. farmers hurt by Chinese bans of American crops had to be subsidized to the tune of $66 billion.

Facing stalemate, the US claimed victory and negotiated an end to the tariff wars.

Today’s tariff battlefield is larger, with more countries, more products, and higher taxes imposed.

Canada’s immediate issue is that we do not have a leader with whom the US president can negotiate. Assuming a new leader is chosen to replace Justin Trudeau, even with an immediate election, it will be at least three months before a prime minister is voted in.

So, no quick fix for Canada. However, as the dust settles, global investors will be forced to remember that Canadian companies are leading exporters of many commodities, including energy, fertilizers, and uranium. We have dominant reserves, low costs, and are almost monopolies in the North American sphere.

The following map from Pimco shows 23 states have Canada as their biggest trading partner. Yes, we are far more dependent on the US than they are on us, but our influence is not insignificant. A trade war benefits no one.

As advisors, we are not overreacting to this. Economic pain in the US is just beginning, and we know how it ended last time: through negotiations and new agreements.

The US Federal Reserve in Atlanta publishes a real-time gauge of the US economy called GDPNow. It shows a sharp decline in the US economy the day the tariffs on Canada and Mexico were confirmed.

Riches to Rags in Three Generations

• "Noble father, rich son, poor grandson" – Italy
• "Rich grandparents, gentlemen children, beggar grandchildren" - Spain
• "Shirtsleeves to shirtsleeves in three generations" - England
• "Rice paddies to rice paddies in three generations" – Japan

What is it about humans that we keep making this mistake?

My wife and I have started listening to podcasts about business founders. These people are extraordinary leaders who started new businesses, invented new things, or led their countries to great victories. What do they have in common?

Most were raised in hardship. Poverty, physical conditions, lack of parental support…many things that should have held them back. Instead, they became driven to improve, to invent, and to innovate. Becoming rich was often just a side benefit.

"Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times."

- G. Michael Hopf

The first generation makes the money. They spend a disproportionate amount of their time on their business or skill, often at the expense of their families. They fail and start over and over until they succeed.

The second generation sees the hard work and benefits from their parents’ efforts, although more as observers than participants. They may admire what was built but often take it for granted. They see the failures but live the success.

The third generation grows up in comfort but with no connection to the original hardship - what it took to make the good fortune. They can become entitled as to their status and abilities, unable to see that they are mistaking good fortune for talent.

"Some people are born on third base and go through life thinking they hit a triple."

• Barry Switzer

The Williams Group research firm performed a 20-year study covering 3,200 families and generational wealth. Seven out of 10 families tend to lose their fortunes by the second generation and nine out of 10 by the 3rd generation. It confirms the old truisms about riches to rags in three generations.

The surprise to me was that it is the second generation that is the culprit. 70% of children inheriting money have nothing left of it by the end of their lives.

Because extreme wealth usually stems from exceptional entrepreneurialism and luck, it is hard for lightning to strike twice. In other words, it is just as easy to lose a family fortune as it is to make it.

As parents, we try to shield our children from our own hardships. We push them into better schools than we attended and cushion the link between hard work and money. A 2024 Bank of America paper (Private Bank Study of Wealthy Americans) showed most high net worth parents don’t discuss the family’s wealth plans until the children were over 31.

We should start talking about money much sooner.

Don’t feel bad – it happens in every generation. We guard children from financial decisions, but it makes them less prepared when they have money of their own.

Even societies fall victim to the generational curse. Kings spoil their princes and princesses, leaving them ill-prepared to become strong rulers. Same thing for dictators. Democracies spend their riches on increasingly lavish social programs to the point where some countries pay half the population not to work.

Author Eric Hoffer called it the “ordeal of affluence.”

My experience watching those families who get it right is that you have to start early. By delaying gratification - denying children things they want - you give them a sense of ambition. This forces a choice between now and later. It creates discipline.

What families did it right? The Rothschilds (banking), Waltons (Wal-Mart), and Mars (candy) families have all kept their fortunes and families mostly intact. They are known for employing their offspring early in the family business and keeping them grounded.

I’d love to say we did everything right, but we still made many of the mistakes described above. Our son turned out just fine.

Once the kids are grown, the most important thing we can do as aging adults is to prepare a sound estate plan. This starts with a will – who gets what and who will administer your affairs in a fair manner. An estate plan may also include setting up a trust to ensure the money you leave your children lasts as long as they do.

Some people just aren’t good with money. In fact, as the sayings prove (and the studies show), most families aren’t either.

Without a plan, even the mightiest fortunes—and nations—fall.