I have avoided commenting on this issue since Saturday's tariff announcement, because I'm only
just now beginning to cool down. I believe I'm in a better place now, so here goes....
Modern international trade norms were established at the behest of the United States, beginning with General Agreement on Tariffs and Trade (GATT), which eventually evolved into the World Trade Organization (WTO). The goal was to reduce/eliminate barriers to international trade, such as tariffs and quotas. In 1988, Canada and the US signed a Free Trade Agreement in an effort to reduce trade barriers between the two countries. In 1994, this agreement was renegotiated to include Mexico, creating the NAFTA. It wasn't perfect and never completely resolved trade issues but was an improvement on what existed before.
During his last term, DJT insisted NAFTA was a disaster and demanded that the pact be renegotiated. After months of churn and very little in the way of change, USMCA was signed and he proclaimed victory, calling it the best trade deal in the history of the world. Now, barely six years later, he is unhappy again and wants to put tariffs on pretty much every import. And, he wants to start with his closest trading partners. He has offered various excuses for 25% tariffs on imports from Canada and Mexico, depending on the day.
Excuses/Justifications:
- Illegal migrants and fentanyl smuggling. While certainly a serious issue, Canada is a relatively small source of illegal migrants. Regarding fentanyl, the amount coming from Canada is a rounding error compared with the amount coming from Mexico and China. And, it isn't a one-way street. There is illegal migration, as well as drug and GUN smuggling from the US into Canada. Regardless, these issues are completely unrelated to trade and could be addressed as such. A trade war would not do anything to help.
- Insufficient defence spending by Canada. You won't hear me say that Canada spends enough on defence. That said, our government has committed to increasing defence spending to the recommended NATO minimum of 2% of GDP. Not quickly enough, but we're working on it. The claim that the US is paying the cost of defending Canada could be debated until the cows come home. Fact is, only the US has invoked Article 5 of the NATO treaty, after the September 11th attacks. When US air space was shut down, 240-odd flights were diverted to airports in Canada. Had we not taken the risk to accept them, tens of thousand of lives would have been lost - the majority being American - when these flights crashed in the Atlantic and Pacific Oceans, as well as in the Arctic. While our military is not large, we sent troops to Afghanistan anyway. Between 2001 and 2014, over 40,000 served in the campaign. We never asked to be re-paid for their service or the cost incurred. Yet, Trump insists that we have a debt to repay.
Regardless, attempting to negatively impact our economy would only impede our ability to invest in defence. How is that helpful?
- Trade imbalance. Here is a concise summary of the trade balance between Canada and the US - TD Economics - Setting the Record Straight on Canada-U.S. Trade
- American banks not allowed to operate in Canada. Unmitigated BS. Trump wrong, U.S. banks can and do operate in Canada, association and professor say While American banks do operate in Canada, the legislation that regulates banks here is fairly strict, i.e. conservative. That may not make it sufficiently attractive for larger scale entry. This legislation resulted in Canadian banks being largely unaffected by the financial crisis of 2008. Why Canada’s Banks Remain ‘Stable and Resilient’ - The New York Times
- US dairy industry treated horribly. Dairy trade is regulated under USMCA - the agreement signed by the last Trump administration. While the efficiency and fairness of the Canadian dairy production quota system can certainly be debated, its purpose is to stabilize the dairy industry, ensuring dairy farms remain viable. In the US, the dairy industry is heavily dependant on subsidies to survive. If Canada opened up our market widely to American imports, it would amount to dumping, which would then justify anti-dumping tariffs. Due to Canada's import restrictions, our dairy industry is largely blocked from exporting product, so it's not like Canadian producers get unfair access to the US market. American dairy farmers depend on government subsidies | Markets Insider
As the straw men, red herrings, dis- and misinformation get refuted, other reasons for tariffs are proffered, seemingly at random.
What Does Trump Really Want From Canada and Mexico? - The New York Times
Mr. Trump has said he wants Canada and Mexico to stop the flow of migrants at the border and curtail shipments of fentanyl. But at least publicly, he has offered only vague benchmarks to gauge their cooperation. Asked on Monday whether there was anything Prime Minister Justin Trudeau of Canada could offer to avoid tariffs, Mr. Trump said, “I don’t know.”
“We have big deficits with Canada like we do with all countries,” Mr. Trump said from the Oval Office. “I’d like to see Canada become our 51st state.”
How does anyone negotiate around that? And no, a "Canschluss" is not in the cards.
It's clear that the US - or, the current POTUS administration, at least - wishes to throw current international trade norms out the window. He appears to believe that the US would benefit from turning back the clock to the revenue-generating policies of the Gilded Age, featuring import tariffs and no income tax. Of course, that period featured a few obscenely rich, many wealthy, many more getting by comfortably....and a whole lot of poverty. If that's what he wants and Americans support it....well, that's his/their choice. However, outside DJT's orbit, the general consensus is that such a change in policy will lead to financial disaster.
While 25% tariffs against Canada and Mexico will have severe consequences for our economies, it will have serious ramifications for the US, as well. Believing otherwise is just whistling in the dark.
