Buckle your seatbelts. We are in for a bumpy ride with trade battles.
Perhaps it was inspired by the desire to appear “tough” ahead of his summit with the North Koreans.
Or maybe he really does believe that Canadians are the enemy and that we’ve been taking the Americans to the cleaners for decades with unfair trade practises.
It’s also possible that decades’ worth of experience and knowledge are all wrong and that Trump alone in his wisdom knows the true nature of our deceitfulness, and that it’s time to pay the price.
Whatever the reason, early June marked a turning point for a President increasingly frustrated at his thin record on the domestic front, and his lack of King-like power in policy debates. He’s turning his guns outward against us and America’s other key allies around the world, where presidents usually have more latitude to act unilaterally.
We may dismiss his ramblings as at odds with reality, and pretend that giant tariffs will never see the light of day. But we must now reckon with the reality that the U.S. President doesn’t care about the western order achieved with great pains over the past seven decades, and that has made us and America rich beyond our dreams.
Here in Canada, our chief worry is about the trading relationship, worth nearly $700 billion last year. Despite the President’s claims to the contrary (sometimes he says things that are
less-than-true), the U.S. “enjoyed” a surplus with Canada of more than $8 billion last year. Not that it matters. Whether trade between such countries as ours and theirs tips in “favour” of one or the other country from year to year means nothing.
What matters is the incalculable — but massive — economic benefits on both sides of the border in employment, investment, and consumer value represented by a trading relationship worth more than a third of our GDP.
Automotive trade represents more than 20 per cent of that total, around $140 billion per year that’s roughly balanced in both directions. Frustrated by stalled NAFTA talks, and lack of leverage to impose terms on all countries (manufacturers have said they would just pay the 2.5 per cent tariff instead of qualifying for tariff free under a NAFTA that imposed the content rules Trump was demanding), the Americans now threaten massive 25 per cent tariffs on auto imports. This is potentially a $35 billion dollar problem, and its negative effects would be difficult to imagine, on both sides of the border.
For auto manufacturing in Canada, the threat is near-existential, and consumers face the very real threat of massive cost increases at dealerships if anything like a 25 per cent tariff is allowed to stand.
For auto manufacturing in Canada, the threat is near-existential, and consumers face the very real threat of massive cost increases at dealerships if anything like a 25 per cent tariff is allowed to stand.
It’s difficult to see such a draconian scenario actually unfolding, but no longer impossible. There is a very strong pro-trade constituency in the U.S., in Congress and in many statehouses. But we are dealing with a President unmoved by the incentives that normally motivate political actors.
He has faced no consequences of note for years of norm-busting behavior, and a strong cohort of his base does believe that they are struggling economically because countries like Canada have taken advantage of decades of American good will. That it is not true simply doesn’t matter.
Any trade arrangement worth $700 billion per year will have some irritants. Lumber and dairy have long featured among lists of sins by both countries, eager to protect domestic producers from perceived treachery on the other side of the border.
If the President’s threats of catastrophic tariffs move us to liberalize our own dairy quotas that are long-passed their best-before dates, then all the better. Almost all Canadians are not dairy farmers, after all, and trade policy should be focused on maximizing value and utility for the many (i.e. consumers), and not delivering excess benefits to the few (producers).
If the Trudeau government can talk Trump off the ledge with some meaningful changes to our own approach on some key trade files, there’s an opportunity for a win-win.
But it’s a big ‘if’, and a very tight line for the government to have to walk with a President unlike any we’ve ever seen before.
