Then-President Ronald Reagan’s closing, bringing the U.S.-Canada Free Trade Agreement into force in September 1988:

“Let the 5,000-mile border between Canada and the United States stand as a symbol for the future.  No soldier stands guard to protect it.  Barbed wire does not deface it. And no invisible barrier of economic suspicion and fear will extend it. Let it forever be not a point of division but a meeting place between our great and true friends.”

Reagan’s brief 729-word talk enthuses over the North American future in practical as well as idealistic terms — “lower prices for consumers, job galore for workers, new markets for producers”; “a rich flow of agriculture and energy resources from one country to another” — and takes some particular pride in the agreement’s innovative services provisions “in such areas as accounting, insurance, tourism, and engineering.”

A generation later, he doesn’t seem to have gotten much wrong. The U.S. and Canada have the world’s largest goods-trade relationship: $412 billion in Canadian energy, metals, grains, etc., serve American homes, utilities, and factories, while Canadians buy $350 billion in U.S. goods, more than any other country and fully a sixth of the U.S.’ $2.1 trillion worldwide export total.  Nor was Reagan off on services and tourism.  Last year, American figures show 20.1 million Canadian tourist arrivals, a number equivalent to half of the 41 million Canadians. An example from Las Vegas, an especially tourism-dependent city: Canadian visitors typically stay 5.5 days at a stretch, and spend more per day on hotels, shopping, and meals than anyone but Australians. By the University of Nevada/Las Vegas count, they support about 43,200 Clark County jobs, add $3.6 billion to Nevada GDP, and lift local per capita income by $368.

This is what Mr. Trump is inexplicably trying to throw away, beginning with a bad-faith Feb. 1 “emergency” decree citing border issues, in particular drug trafficking, as justification for a 25% tariff on Canadian-made goods. (Tariffs and bans on legal products are rarely if ever useful responses to narcotics issues, and there’s very little there anyway: per U.S. Customs and Border Protection stats report “northern border” patrols accounted for 0.1% of last year’s fentanyl seizures, 0% for heroin, 3% for marijuana, and 0.1% for methamphetamine.)  Following that have come months of “51st state” insults and veiled threats, oscillating tariff decrees for cars and aluminum, and wholly unfounded claims that the U.S. is somehow “subsidizing” Canada.

This has done some visible economic harm to Canada — GDP growth down a point, unemployment and inflation visibly, if not drastically up — and brought a reaction, both from the Canadian public and in Canada’s larger strategy. That in turn is helping to sap American growth and employment. Two examples:

(1) Export losses: Canadians this summer have been looking for visibly American consumer goods, so as not to buy them. This has cut American wine, spirits, and beer exports by more than half, from $247 million in the first half of 2024 to $91 million so far this year, or by about 7 million gallons:

U.S. exports to Canada	Jan-June 2024	Jan-June 2025
Wine	24.4 million liters	11.6 million liters
Spirits	9.1 million liters	6.1 million liters
Beer	14.5 million liters	6.9 million liters

(2) Tourist visits: Much the same shows up in canceled air routes, lower searches for homes, and especially tourist visits. Just as they helped to show the success of North American integration through 2024, they now show unraveling and loss. StatCanada suggests Canadian tourist visits are down by a third: they counted 2.7 million returning Canadian cars in July 2024, and 1.7 million last month. As a particular case study, Las Vegas’s 1.4 million Canadian tourist visits make up more than a quarter of all international arrivals.  This year’s sharp drop in Canadian arrivals has accordingly made 2025 a bad one, with total visitor counts down by more than 10% and Clark County unemployment rolls up by 8,000 from April to June.

“[L]ack of Canadian visitors to casino resorts is a significant factor in Las Vegas traffic falling … Las Vegas Convention and Visitors Authority (LVCVA) and major casino operators data for June released this week showed that total visitation to the resort city fell by 11.3% to 3.1 million. June was the sixth month in a row in which the number of Vegas travelers fell year-over-year, but the first month in which the drop-off was in the double digits in more than four years.”

More generally, as jobs and income seep away out of U.S. casinos, distilleries, vineyards and hotels, an assessment this spring from Canadian Prime Minister Carney provides a chilly next-generation counterpoint to Reagan’s enthusiastic and then-bipartisan vision of trust, integration, and shared destiny:

“Our old relationship with the United States, a relationship based on steadily increasing integration, is over. … When I sit down with President Trump, it will be to discuss the future economic and security relationship between two sovereign nations. And it will be with our full knowledge that we have many, many other options than the United States to build prosperity for all Canadians.”

Those seeking a useful case study in folly and unprovoked self-harm won’t do much better than those. Those seeking a bright spot: Canadians probably haven’t quite given up. A recent Pew poll, for example, finds that while “approval” of the U.S. is badly down at 34%, and 59% of Canadians view the U.S. as their “greatest threat,” a slightly smaller majority of 55% also still thinks of the U.S. as “greatest ally.”

In sum, this problem is self-created and probably not insoluble. All that’s necessary to start is for the U.S. government to be an honorable ally and good neighbor to a friendly country. Pretty much all American presidents have managed this up to now, so it can’t be that hard.

A strange and troubling-in-multiple-ways announcement via BBC*:

“Chip giants Nvidia and AMD have agreed to pay the US government 15% of Chinese revenues as part of an ‘unprecedented’ deal to secure export licences to China, the BBC has been told. The US had previously banned the sale of powerful chips used in areas like artificial intelligence (AI) to China under export controls usually related to national security.”

* Using a journalistic source, as the administration hasn’t made an official statement as of our publication time. 

This policy lurch is the most recent in a three-year back-and-forth, which began with an October 2022 ban on sales to Chinese customers of exports of high-end semiconductors meant for artificial intelligence programming. Nvidia, the California-based graphics processing unit and AI chip designer, followed up by designing a version of its “H100” and “H200” chips (designated “H20”) meant to be useful only for commercial markets. Then-Commerce Secretary Gina Raimondo approved the idea in December 2023. The Trump administration, having re-blocked the H20 chip in mid-April, has now apparently changed its mind, allowing Nvidia (and AMD as well) to proceed if they give the U.S. government 15% of the money they earn from these sales.

Outside the trade-and-security world, this sort of direct and apparently long-term government involvement in particular companies usually means trouble. (See below for some thoughts on the implications for taxation and market economics.) Taken strictly as export control policy, it’s worse. Decisions like “should advanced tech companies sell a particular type of computer chip to China?” are complex judgment calls, but their foundation ought to be simple: the best national security analysis available. Adulterating that with revenue concerns is a bad mistake. In specific cases it poses both the risks of ill-advised high-tech sales to potential adversaries, and the risk of lost exports of safe products. More generally, it opens an essential policy area to systemic danger of corruption.

To pull back: “Export control” policy attempts to ensure that military-related technologies — not only actual weapons but software, specialized ceramics and alloys, advanced chips and computers, biotechnology, etc. — developed in America and allied countries don’t go to adversaries, or spill out onto world markets from which they can then flow to unfriendly places. Using a base in American law and four international “regimes” meant to coordinate policies to the extent possible with allies and major powers (also see below), government experts centered in the Commerce Department’s Bureau of Industry and Security (“BIS”) try to categorize, track and when necessary ban exports of 538 classes of physical goods and software in 9 industry groups. (Nuclear technology and firearms; special materials, chemicals, toxins, and microorganisms; materials processing; electronics; computers; telecommunications and ‘information security’; sensors and lasers; navigation and avionics; marine; aerospace and propulsion.) BIS’s 600 staffers are busy; their most recent Annual Report records decisions on 37,943 license applications — about 100 a day — covering $26.7 billion in total exports, or about 1.5% of all U.S. goods sales abroad. To make these calls they need to:

The officials charged with making these calls rarely have all the information they’d like, their decisions are typically unpalatable choices between lesser evils or unhappy ones among competing goods, and export control history is full of cautionary tales about well-intentioned decisions gone wrong. (Classic ur-case here). As an organizing principle, the Biden administration’s “small yard, high fence” slogan — protect what’s really sensitive, don’t overregulate – is useful, but rarely leads to an obvious answer for any specific decision, and that’s true of the Nvidia/AMD case.

Without passing judgment on the technical questions in this one — did the 2022 freeze slow Chinese tech development, or, contrariwise, accelerate Huawei’s own chip-design program? if the H20 ban were to stay on, would other European or Asian suppliers simply replace U.S. firms? how would lost export revenue affect U.S. firms’ research budgets and next-generation products? — it’s enough to say that U.S. officials need to base their decision on impartial analysis and objective national security criteria.

Adding a government revenue interest to this mix risks warping not only this particular decision, but future export control policy in general. When favored transactions will bring in money, after all, government will have an incentive to allow transactions that might not be harmless. Contrariwise, if it can collect money from one company, it will have an incentive to ask others for similar fees. That can mean a large incentive for corruption of government and business alike, with both sides aware that flows of money could ease approval of transactions that pose risk, and that government could withhold approval for useful and low-risk transactions when companies choose not to pay.

In sum: Taking money in exchange for approving export licenses is poor semiconductor policy, risky for national security, and bad precedent for future export control policy. Congress should reverse this ill-advised and dangerous call as soon as it returns to work in September.

FURTHER READING

PPI’s four principles for response to tariffs and economic isolationism:

• Defend the Constitution and oppose rule by decree;
• Connect tariff policy to growth, work, prices and family budgets, and living standards;
• Stand by America’s neighbors and allies;
• Offer a positive alternative.

A BBC look at the 15% Nvidia/AMD arrangement. (Using a journalistic source since, as of this writing, we’ve seen no formal statements from the administration or the companies.)

U.S. background:

Former Undersecretary of Commerce Alan Estevez on export control policy as of 2024.

BIS explains the Export Administration Regulations.

… publishes the list of controlled technologies.

… and documents its work (though only up to FY2023) in Annual Reports.

International background:

The Nuclear Suppliers Group:  1974, covers nuclear-power technology, uranium, heavy water, and transport.

The Australia Group: 1985, on chemical and biological weapons and related technologies.

The Missile Technology Control Regime: 1987, for ballistic missiles and associated technologies such as avionics, sophisticated ceramics and metals, rocketry, etc.

The Waassenar Arrangement: 1994, covering conventional weapons and technologies of the “powerful chip” sort.

And two other things:

Through an export control policy, the “15%” decision has big implications for broader and more abstract questions of governance. Here are two:

Taxation and separation of powers: The Constitution flatly bans taxes on exports. (Article I, Section 9: “No Tax or Duty shall be laid on Articles exported from any State.”). It’s not clear whether payouts from AMD and Nvidia under this arrangement would be considered a tax, a donation, or something else. But constitutionally, it’s a strange arrangement, and fits into an unwholesome pattern of attempts to create extra-legal “revenue streams”. See also the administration’s attempts to impose tariffs by decree and its (probably unsubstantiated) claims about the investment sections of the still-unpublished tariff “deals” with the European Union, Japan, and Korea.

State capitalism: Likewise, this arrangement is a second ill-judged move away from normal markets in which companies subject to impartial regulation compete with one another on the basis of quality and price, and towards “state capitalism,” . The first example, earlier this year, is the administration’s insistence on getting a “golden share” in U.S. Steel, with rights to participate in future investment and personnel decisions, as a condition of approving Nippon Steel’s acquisition of U.S. Steel last June. This makes the U.S. government a direct competitor to American steel companies as well as international metal suppliers. In much the same way, the Nvidia/AMD payout would make the government a direct beneficiary of exports to China from two American companies and implicitly a rival to others. To put it mildly, that’s not healthy for competing businesses and startups, and it probably, over time, isn’t good for favored “national champions” either.

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

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