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,