How ‘system thinking’ explains how Canada will be affected by Donald Trump’s tariff threats
United States President Donald Trump has threatened to slap tariffs on Canadian and Mexican products in a month’s time. This will lead to retaliatory tariffs by Canada against the U.S.
In an economic context where trade relations are interdependent and highly integrated, this tariff war will likely trigger a complex series of cascading effects, affecting governments, businesses and citizens alike.
President Donald Trump holds a signed executive order on deregulation in the Oval Office of the White House on Jan. 31, 2025, in Washington, D.C.
(AP Photo/Evan Vucci)
As a doctor in the psychology of decision-making, I strive to understand why we find it so difficult to manage the major complex challenges of our time like this looming trade war, whether it’s climate change and its ensuing hazards, pandemics and health crises, social inequalities, economic crises or the unpredictable behaviour of financial markets.
My aim is to uncover possible solutions to help decision-makers — particularly elected politicians — make choices that will improve the situation rather than aggravate it or create new problems.
Politics is a good example of a complex environment, marked by many interacting factors. Unforeseen events and trajectories further accentuate this complexity, especially as the desired objectives can sometimes conflict.
On the other hand, access to information relevant to decision-making is often restricted. The quality of content varies considerably due to misinformation shared by various sources actively disseminating misinformation influenced by partisan motivations and ideological perspectives, alongside disinformation, which is deliberately biased — two phenomena that have proliferated in recent years.
The limits of cognition
Faced with the complexity of the real world, human beings — politicians and ordinary citizens alike — are limited in terms of decision-making, and the solutions they propose are often influenced by bias.
This includes the propensity to filter information and retain only what corresponds to our personal ideology, and to judge a problem in terms of reference values. This is common in politics.
An example is the $7 million subsidy granted by the Québec government last year to finance two pre-season games for the Los Angeles Kings.
Despite a barrage of criticism, the government defended the expense, arguing it was within the usual order of magnitude of the budget dollars allocated to these kinds of sporting event. Its defence was basically: “That’s what we’ve always done.”
Such flawed thinking leads to an excessive focus on immediate symptoms rather than causes, while encouraging the implementation of superficial solutions. This type of behaviour is essentially aimed at reducing complexity to an intelligible level. Indeed, research shows that beyond four or five related variables, human cognition has enormous difficulty predicting how a situation will evolve.
System thinking
There are no ready-made answers to complexity. However, certain avenues are emerging, one of which has been attracting the attention of researchers for a number of years: it’s called system thinking.
The scientific community is continuing its empirical assessments of whether system thinking is a genuine cognitive skill and how to develop it in a sustainable way — for example, through training (a bit like working out at the gym, but in a lab). But it could potentially enable us to better manage complex socio-political problems.
System thinking is essentially about looking at problems holistically; thinking about the consequences of consequences. In this case, it’s about anticipating the cascading effects that a 25 per cent tariff on Canadian products exported to the U.S. could have on Canada’s economy.
Economists say the direct consequence of these tariffs will be an immediate drop in sales and revenues for Canadian companies, primarily those dependent on exports to the United States.
Read more:
U.S. tariff threat: How it will impact different products and industries
Companies will make bold attempts to enter new markets, but this will entail additional development and logistics costs, at least in the short term.
Some may have to lay off employees and reduce work shifts, which will boost unemployment and compensation claims, because retraining workers takes time. This will put pressure on public finances.
Prime Minister Justin Trudeau addresses the media following the imposition of a raft of tariffs by U.S. President Donald Trump against Canada, Mexico and China.
THE CANADIAN PRESS/Justin Tang
The impact on suppliers
For other companies, it will mean adjusting production downwards, which will affect suppliers. Reduced order books — whether for raw materials, components or services — will amplify the impact of the tariffs on all stakeholders in the supply chain.
In turn, these companies could be forced to reduce their workforces, leading to a further rise in unemployment.
This will put further pressure on public finances.
Once the government has reached its threshold of tolerance to criticism — the point at which the political costs become too high electorally — it may choose to intervene by supporting certain sectors having difficulties, for example through subsidies or loans designed to temporarily maintain competitiveness and preserve jobs in sectors deemed strategic.
This will put considerable pressure on public finances.
Higher taxes ahead?
In any case, a tariff hike will damage trade relations, leading to an escalation of tensions and a new round of barriers, both tariff and non-tariff. A form of trade war, if you will.
You guessed it: this will put increased pressure on public finances.
Although simplistic in the face of the complexity of the real world, this brief thought exercise is useful, as it allows to practice anticipation: what will happen if the government is forced to increase spending? By using system thinking, you’ll be able to guess that taxes are about to rise.
Perhaps Trump would have made different choices if he had used system thinking and looked at the consequences of his actions. Considering the potential for inflationary pressures that threaten the American economy if he proceeds with tariffs against Canada in a month, any reasonable person would hesitate to impose them. Läs mer…