Buy Canadian is Good-- ABUSA (Anything but USA) is Better

One cannot help but feel inspired and proud to witness the efforts of Canadians to buy Canadian-made goods and services. There may not be 41 million Canadians 'on the ice' in this arguably existential battle with the US, but the vast majority of Canadians from all regions and backgrounds have 'jumped the boards' to do what they can to support workers and businesses who have been hurt by the punitive, treaty-breaking tariffs and trade barriers the Americans have imposed on the Canadian economy. 

While all this is good, it is important to remember that what we are fighting against are the unjustified US attacks on our economy and even more concerning, threats to our independence and sovereignty. We aren't or at least shouldn't be fighting against international trade.  The classical British economists in the early 19th century clearly set out the mutual benefits of trade -- both parties are better off when they produce more of what they are relatively efficient at and buy what is inefficient for them to make. Tariffs and other trade barriers do benefit the protected industries, especially the owners of the firms who are able to charge monopolistic high prices, but they unquestionably hurt the general economy and population as a whole.

So better than 'Buy Canadian', the rallying cry for Canadians right now should be ABUSA--- Anything but USA. We shouldn't abandon international trade and the mutual benefits that provides-- we just want to ensure that the trading partners we develop and rely on will treat us fairly and reliably-- something the US clearly is not and may never be willing to do.

As we seek out new trading partners and relationships, the objective is not simply to find new markets for our goods. It is to develop new sources of supply for the goods and services we used to buy from the US. We can't make everything we need, nor would we want to -- not if we want efficient industry and affordable products.

The protectionist mindset is widespread, particularly among political leaders more focussed on narrow interests and favoured industries than the economy as a whole. Trump is undoubtedly an extreme example of protectionism at its worst, but he is not alone. Our own provincial leaders do the same. It is why it is so hard to break down the interprovincial barriers to internal trade that cost our economy billions each year. 

Canada is hurting right now not because we are a trading nation. We are hurting because we became too reliant on the US-- a country that has decided not to honour its treaty commitments or even follow a rational course of maintaining let alone strengthening mutually beneficial trade.

As we move forward we must not retreat into a protectionist Buy Canadian (or buy only from my region or province) philosophy. We must cultivate fair, dependable, mutually beneficial trading relationships where we produce what we are good at and buy what others produce better. That is how we can best grow and prosper, something the US will have to relearn if it wants to avoid economic upheaval and decline. 

Retaliation to U.S. Tariff Attack

 We will hear today how Canada intends to retaliate 'dollar for dollar' to the U.S. tariff attack on Canada. As University of Calgary economist Trevor Tombe has written, it will be impossible to structure retaliatory tariffs that simultaneously satisfy three key objectives: targeting U.S. swing states; significantly impacting U.S. producers; and minimizing impact on Canadian business and consumers. Perhaps a different approach is required.

What needs to be addressed is not the U.S. tariffs in themselves -- this is not a commercial issue. What needs to be addressed and challenged are the manifestly clear U.S. objectives. They want to shift auto, metal, wood product and other major manufacturing activity from Canada to the United States and at the same time retain Canada as a source of low cost primary energy, mineral, raw log and other resources.

Our retaliation could and should directly and transparently target the U.S. attempts to turn us into a classic resource colony with a three-pronged approach.

1) Canada should tariff all U.S. manufactured goods at the same rate they tariff us. We should eliminate the tariff rate imbalance that will encourage industry to move from Canada to the U.S. even for goods sold in Canada. 

2) Canada should require retailers to clearly indicate U.S.-sourced supply. Canadians want to help defend against the U.S. tariff attack; they should be given the ability to do so..

3) Canada should impose an export tax on all primary resources destined to the United States at a rate equal to the weighted-average tariff rate the US is imposing on our manufactured goods. We shouldn't allow the U.S. to access our primary resources tariff free for their manufacturing activity while they are  attacking our own manufacturing industry. 

This three pronged approach would make clear to the Americans how and why we will respond to their current attack and the additional ones they are threatening. It would make clear to U.S. citizens we are not the aggressors; we are responding to their aggression.  And if and when the U.S. reverses its trade agreement-breaking attacks,  our retaliation would automatically end. 

This three pronged approach would provide what is sorely needed -- clarity and resolve on where escalation will lead and a set of principles setting out how deescalation can quickly be achieved.

Our Strongest Counter to the American Demands

It has rightly been said many times: nobody can win a trade war. And it goes without saying that a trade-dependent country like Canada certainly can't win a trade war with the much larger and less trade-dependent U.S. Both countries stand to lose; Canada much more.

The U.S. is counting on this imbalance (as well as a misguided or cynical disregard for its own economic interests) to press for manifestly unfair trade arrangements with Canada. They want to restrict sales of Canadian goods into the U.S. market, limit any countervailing restrictions on the sale of U.S. goods into the Canadian market, and secure priority access to Canadian energy, critical minerals and other valuable resources that presumably goes beyond what paying competitive prices would provide.

The U.S. leverage is clear -- they can hurt us more than we can hurt them. The question is: how can Canada fight back.

The Carney government appears to be doing all the right things. The more we can diversify our trading relationships, the less dependent will we be on the U.S. -- the less can they hurt us. The more we can stimulate domestic demand with interprovincial trade and more infrastructure and other investments, the less devastating will the U.S. trade restrictions be. 

Nevertheless, significant loss of U.S. markets and disruption of well-established supply chains will significantly impact Canadian businesses, workers and communities.  Restructuring our trade relationships and internal economy will take time. In the interim, business will be lost, workers laid off and families dislocated in the search for new opportunities and employment.

Knowing this, the Carney government must do more than map out a less U.S. trade-dependent future. It needs to articulate and commit to the wide range of worker, family and community support policies that will enable a major restructuring of the Canadian economy in an equitable way. It is easy for Canadians whose jobs and livelihood are not at risk to demand that we stand up to the Americans and that we refuse to accept the unfair trade relationship the U.S. wants. What we need are policies that support those at risk so they too can demand we stand up to the Americans . We need to ensure that it isn't just steel or auto or forestry workers and communities that pay the price.

The U.S. thinks it can make unreasonable demands and secure an imbalanced, unfair deal because of the pain it can inflict. Our strongest counter is to make clear that the pain they can inflict will be short-lived-- Canada will restructure and move on. In the meantime we can take the pain and we can do that because it will be shared.

Elbows up, but hearts in place.

Open Season on BC Ferries (Again)

It is open season on BC Ferries again. Pundits and politicians from all sides are skewering the company for its decision to go to a Chinese shipyard for its next major purchase of new ferries. They should have, it is widely argued, had the ferries built in Canada instead.

Of course, the political vitriol aimed at BC Ferries makes no practical sense. There are no Canadian shipyards with the capacity and interest in building these vessels. One could argue we should have that capacity in Canada, but we currently don't. To say BC Ferries should have had their ferries built in Canada is really to say BC Ferries should have deferred its purchase of the new vessels that it needs today until some indefinite and uncertain future time when efficient, cost-effective Canadian capacity exists. 

There is a tragic irony in all this. It wasn't all that long ago when pundits and politicians were skewering BC Ferries for the exact opposite reason. Then Premier Clark wanted BC Ferries to be a catalyst for the development of a new fast ferry shipbuilding industry in BC. It did not go well. Costs skyrocketed as new skills and capacity were being developed, and there was little sympathy for paying a premium price for the 'Made in BC'  policy. Whatever one's view on the merits of fast versus conventional ferries, it would have been far less costly to purchase them offshore.

It would be good if before venting our frustrations at BC Ferries (which sadly is a perennial sport in coastal BC), we should be clear on two very important things: 1) what do we want; and 2) what trade-offs are we willing to make.

As for what we want: ferry users want frequent, reliable and low cost ferry service; taxpayers want minimal subsidies; and politicians and pundits seem to really want BC Ferry-driven industrial development. 

What everyone doesn't seem to want is to recognize the trade-offs.

As a long-time observer and at times participant in BC Ferry battles left and right I would suggest everyone step back from the vitriol and think about the objectives and trade-offs BC Ferries had to consider in this latest purchase decision.

Does it need new vessels at this time? Almost certainly yes. Old vessels need to be replaced with more efficient and most importantly more reliable ones. 

Should it purchase the new vessels from the most cost-effective source? Again, unless the government explicitly directs otherwise the answer is yes. And if, for whatever reason, the government wants to rule out the lowest cost supplier it should be clear with ferry users and taxpayers that they will have to make up the difference. I am no fan of Milton Friedman, but he was quite right 'there is no free lunch' and by the same token 'there is no free buy from higher cost supply'.

Whether we should develop ferry-building capacity in BC for future vessel requirements is a separate matter, and clearly not one BC Ferries should have to decide. That is for government policy to sort out. And despite the political appeal it requires careful consideration.  Just because we need new ferries from time to time doesn't mean they should be built locally. We don't want to follow the same nonsensical economic policies that we are currently witnessing in the United States. If we have or can develop a sustainable comparative advantage in ship-building and have or can attract the skilled labour it requires, then for sure it is something to pursue. But if there will always be lower cost sources of supply we are far better off to purchase the vessels we need and concentrate our economic development on what we can most efficiently produce.

The lesson from the US abandonment of trade agreements and their betrayal of mutual interest is not that we shouldn't trade-- it is that we shouldn't trade almost exclusively with what has proven to be an unreliable partner. It is diversity of trading partners, not abandonment of the basic principles of trade we should be pursuing.

 

Inside the Tent or Fair Access Through the Door

Trump and his team have said that his so-called reciprocal tariffs are non-negotiable. But like much of what Trump says, the truth is the exact opposite. There is no question that all of these tariffs will be subject to negotiation. The tariff rates are too illogical, having no basis in reciprocity, and too destructive for the U.S. as much as everyone else to last. 

There have been the post hoc arguments of Trump and his coterie of manifestly incompetent economic advisers that the self-inflicted chaos following the release of the country-by-country 'reciprocal tariffs' was expected and will be short-lived.  It was all designed to bring down US interest rates and restore US manufacturing. The immediate economic downturn, they argue, will lead to lower US interest rates and the higher prices and reduced competition from foreign suppliers will lead to unprecedented investments in US manufacturing. But the downturn will only be as short-lived as the bat-shit crazy tariffs, the reduction in US interest rates will only take place when the threat of tariff-induced inflation is removed and the investment in US manufacturing will only take place when the uncertainty and unpredictability of US trade policy is eliminated. 

The 'reciprocal' tariffs won't last. Call it what you will ---the 'art of the deal' or completely immoral extortion by the rich of the poor; there will be negotiations and a new, hopefully less universally destructive US tariff regime will be put in place.

In Canada's case there is an explicit understanding there will be negotiations following the Canadian elections. All political parties are making their case that they will stand up to the Americans in these negotiations- they will get the best possible deal. That much is clear. What isn't clear is what they hope to achieve.

We know what Premier Smith of Alberta would want -- a carve out for Canadian oil and gas exports. She wants Alberta's main industry inside the US protectionist tent and what happens elsewhere doesn't much matter. I suspect the Pollievre conservatives would want pretty much the same, but from a national perspective --getting Canadian industry inside the tent. One can imagine the fundamental bargain that would be made: unimpeded US access to our energy, critical mineral, raw log and other resources, some accommodation of US concerns about what they consider to be unfair or unacceptable Canadian tax, cultural and other policies, and some restrictions on trade-relationships with other parties all in exchange for continued, mostly tariff-free Canadian manufacturing and other industry access to US markets. 

What is less clear and arguably more interesting given their front runner status in the election polls is what the Carney Liberals want to achieve. Are they looking to get Canada inside the US protectionist tent despite some loss of control over resources and over tax, third-party trade and other policy, or will they hold out for a more balanced truly reciprocal bi-lateral relationship even at some cost to our access to the US market?

If we want maximum relief in the short term, getting inside the US protectionist tent is the best bet. If we want to reduce our dependence on the US market and on the good faith of future US policy, it is a more balanced reciprocal bi-lateral relationship we should seek. That means maintaining control over our resources and our sovereignty over tax, third-party trade and other policy despite the short term costs that may entail. 

It is time for political leaders to be clear. We know they want to stand up to the Americans, but to what end. Do they want to get inside the US protectionist tent or do they truly want to develop a new relationship with balanced, truly reciprocal access through the door?

Forget About Winning the Trade War; Focus on the Bigger Win

I'm all for 'elbows up'. Like most Canadians I applaud the retaliatory tariffs and threats of other measures our government has made in response to the unjustified, Treaty-breaking tariffs that the US is imposing on Canadian goods.  

But let's be clear.  Retaliatory tariffs and other measures won't win the trade war. If the US president doesn't care about the severe costs that his own measures are having on the American economy and its place in the world, it is difficult to see how the added costs of our retaliatory measures will move him. In many ways our retaliation is more important for what it means for us. The immediate push-back lifts our spirits and signals our resolve not to let the US assault on Canada go unanswered. 

If the first principles of economic theory and the actual historical record teach us anything, it is that no one wins a trade war. The best one can hope for is to minimize the damage. Our retaliation may help if they serve to galvanize internal US opposition to the president's apparent fixation on destroying long-standing, mutually-beneficial trading relationships. But they won't bring about a 'win'. They won't improve on the trading arrangements we had with the US, and they certainly won't restore confidence in a relationship that can so easily be shattered without justification or reason.

It is important to keep all that in mind when, as the president is reportedly determined to do, the US escalates the trade war with further unjustified tariffs and we have to consider how best to respond. 

To my mind, once one accepts that trade wars can't be won and the old order never fully and confidently restored, the best response is to pull back. The US is like a bully, completely out of control, throwing punches in all directions including on his own face. Of course we have to get the elbows up and hit back in response. But we aren't going to 'win' the fight. The only real way to win is to pull away, Maybe the bully will realize he took our friendship for granted. And maybe he will behave better down the road. But the big win is when that doesn't matter or at least doesn't matter nearly as much as it does today. And it is on that big win that Canada should be focussed.

In trade, what is more important than the retaliatory tariffs we impose are the new trading relationships we develop, both within the country and abroad. And underlying that will not simply be the interprovincial and international agreements and understandings we reach, but the hard investments we make in the transportation, port, electrical grid and other infrastructure that is needed for that trade to cost-effectively take place.

We need to consider where and how Canada can further develop its comparative advantage in industry, science, education, health care  and other fields to move away from our over-reliance on the resource and supply chain role we have had in what was an integrated North American economy. 

With respect to defence, what is most important are the new partnerships and military equipment procurement strategies we must pursue to lessen our dependence and vulnerability to the US. We will get far more respect and attention from the US when we stop supporting their military industry than when we impose a tariff on US-produced discretionary consumer goods.

As for global health, the environment, human development and resolution of international disputes and dysfunction, we must expand our efforts to work with like-minded countries so that abandonment of these critical issues by the US does not mean abandonment by the rest of the world.

This upcoming election in Canada is so important in so many ways. The contenders will no doubt spend a lot of time telling us how they will stand up to the US to 'win' the trade war the Americans have foisted on us.  Better they should tell us how they will pull away from the US and this war no one can win -- how they will stand up for a Canada very independent from the US.

It is Not Just a War on Canada

 It is not surprising and not altogether wrong for us to focus solely on what Trump's America is doing to Canada. With his unjustified and treaty-breaking, open-ended threats to impose 25% or higher tariffs on Canadian goods, Trump has in effect declared economic war. He apparently would gladly take us over, but is quite prepared to destroy our economy if he can't. 

Some of the more extreme among us would say we are the Ukraine of North America. Just as Putin sees only an obedient, Russified Ukraine or a physically destroyed country, Trump would seem to see only an obedient, Americanized Canada or an economically crushed territory.

However, as tempting as it is to go down that quite reasonable, albeit self-pitying road, I believe that would be a major mistake. Of course we must prepare for the economic warfare Trump has brought on us, both with our short term lobbying to delay and ideally eliminate the threat of tariffs (the threat itself seriously damaging to the economy) and with our longer term efforts to reduce our dependence on the US market. But we must also prepare for what could be the greater calamity -- the end of the United States as a stable, reasonable country and  leader in western and world affairs.

Trump isn't just declaring war on Canada and Mexico. He is declaring war on reason and fact-based policy; on human rights; on the environment; on justice and impartial application of the law; on critical international institutions, agreements and respect for territorial integrity. Fundamentally more important for Canada and the world than the war Trump has declared on us; Trump has declared war on the United States itself and the many positive contributions the US has made in leading the western world. The United States has never been perfect -- far from it. But it has been an important model and leader in many respects, arguably moreso than any other country over the last one hundred years.

The question for Canada is not just how do we protect ourselves but what do we do to develop new alliances and new leaders to champion the values, institutions and international understandings that are essential for the world to cooperate on the fundamental problems we collectively face -- climate change and protection of the environment; control of weapons of mass destruction; eradication of extreme poverty; identification and protection from virulent disease; respect for territorial integrity and peaceful resolution of disputes. It may be that Trump and his supporters recoil at 'globalist' concerns and actions, but the fact is we are one world; we have shared challenges and opportunities and they are growing in importance every day.

Canada is a small country but we are not alone. There are many countries in this world that share our basic values and concerns. We need to reach out to them -- not so much to help us with our 'war' with the US, but rather to address and respond to the war Trump has unleashed on the values his own country once stood for,