Tit-for-tat retaliation is not the right approach to battle Trump’s tariffs
Once again, our industry is being held hostage by perhaps the most unpredictable President ever to occupy the White House.
As of this writing, the U.S. Department of Commerce is conducting an investigation into the possible national security threat posed by automotive imports from allies, Canada among them. This justification is the only legal tool in the President’s kit to levy a tariff of up to 25 per cent on automotive imports into America, a remarkable act of self-harm the President seems intent on carrying out.
The notion that somehow, vehicles built in Canada and sold in the U.S. represent a national security threat to our neighbours is patently absurd and more than a little insulting.
Automotive trade between Canada and the U.S. is worth $140 billion per year. We made more than two million cars here last year, more than 80 per cent of which were destined for American dealers and consumers. We share the world’s longest undefended border and the richest bilateral trading relationship in history. The cars we build and send to the U.S. border are not tanks built for invasion and occupation. They are vehicles that American families depend on for their road trips, their grocery runs, their very way of life.
And yet. America looks poised to levy upon itself a tax in the tens of billions of dollars. This is what a tariff is: a cash levy on trade imposed by a government; a tax. Ultimately it will be paid by the U.S. consumer. If America for some reason sees fit to impose on itself this sort of cost for no reason at all, it’s very likely there is nothing that we or any other country can do about it.
What we can control is what we do by way of reaction. The rhetoric normally employed around such debates is that of the schoolyard bully, who will only back down in the face of equally harsh treatment. This entirely inappropriate metaphor has managed to warp the public debate on tariffs in such a manner that millions of Canadians are convinced that if America punches us, we have no choice but to punch back.
But America, in levying a tax on itself in the form of auto tariffs, is not punching us. It is punching itself. Yes, we will feel some pain. Our manufacturers will bear a significant burden. But nothing like the burden that will be felt by U.S. consumers. If the schoolyard bully is beating himself up, why on earth would we respond by doing the same thing?
But this is war, they will say. In a war, when you are attacked, you hit back. This is surely true. But a trade “war” is not an actual war. References to World War II and Hitler also often make appearances at this stage of the debate.
But the comparison is entirely irrelevant in the current context. Tariffs are akin to blowing up your cities in the hopes that the smoke will burn your enemies’ eyes. The war metaphor fails too. Trump’s tariff is a tax on American consumers. It is not the invasion of Poland. Declining the opportunity to levy a tax on ourselves just because someone else did is enlightened economic self-interest, not appeasement.
The reality we face is that tit-for-tat, dollar-for-dollar trade escalations with America in automotive is just not an option. It would be ruinous for the Canadian consumer and economy. Our government knows this.
There are other tools at its disposal, including tariff elimination from all non-U.S. countries to help wean us from our dependence on the elephant attached to our southern border.
We have our own giant tariffs in other sectors of the economy, the elimination of which would bring immediate relief to consumers, particularly low-income ones, and export-minded producers in those industries that currently lack access to overseas markets.
If Trump follows through on this threat, the politically “easy” thing to do would be to retaliate, because the public has been misled through the widespread use of the schoolyard bully bedtime story as it relates to trade disputes. But in trade, as in war, sometimes the easy thing is not the right thing.
