The 2018 trade war and you
Canada is in a very vulnerable position
The U.S. Department of Commerce has filed a complaint before the World Trade Organization alleging that retaliatory tariffs taken by China, the European Union, Turkey, Mexico and Canada against United States tariffs imposed on all five of these actors are illegal. According to the Trump administration, American tariffs on foreign nations are justified in the name of national security. But any foreign retaliation against American interests is unacceptable.
The United States Department of Commerce is also conducting hearings in Washington, D.C., this week assessing planned auto tariffs on 25 per cent tariff on any and all automobiles and auto parts crossing from Canada into the United States. As mentioned in my last column such tariffs would cause chaos in the highly integrated North American automobile industry, jacking up prices on automobiles in the Canada, Mexico and the United States.
The TD Bank has already estimated that a 25 per cent tariff on automobiles and auto parts entering the United States from Canada could result in the loss of 160,000 Canadian jobs, most located in Ontario.
And just this past weekend French Finance Minister Bruno Le Maire stated at a meeting of G-20 finance ministers in Argentina that a trade war pitting the European Union and China against the United States is now a reality.
So welcome to the Great Trade War of 2018, the World vs. the United States, and a trade war very much the making of one man, United States president Donald Trump, and his quest to Make America Great Again.
As this trade war heats up over the coming months Canada is in a very vulnerable position. According to Statistics Canada fully 75 per cent of all Canadian exported goods go to the United States. But only 16 per cent of total American exports come to Canada. In short, Canada is much more dependent on trade with the United States than the United States is dependent on trade with Canada.
It’s for this reason Trump is playing hardball with Prime Minister Justin Trudeau on the trade front. He probably believes that when push comes to shove the Canadian government will cave under the pressure and accept an American-centred trade relationship where we export less and import more from the United States. Making America richer and Canada poorer.
But the battle lines are not completely bleak for the Canadian side in a trade war with the United States. According to American data from the office of the United States Trade Representative, 35 American states have Canada as their largest trading partner. This number includes such states as Pennsylvania, Ohio, Wisconsin, Kentucky, North Dakota, Florida and Virginia. All states vital to Republicans in the 2018 mid-term elections this November and to Trump’s re-election hopes for 2020.
Existing Canadian retaliatory tariffs amounting to $16.6 billion against American tariffs on Canadian steel and aluminum have been targeted precisely against many of these states and their exports to Canada, such as Kentucky bourbon, Pennsylvania chocolate and Florida orange juice.
And if Trump targets Canadian automobile and auto parts exports to the United States, American consumers of new vehicles will see all their costs increase.
Perhaps Canada’s greatest ally in this trade war is the rest of the world itself. Trump is leading America into trade wars with China and the European Union, Mexico, Turkey and India. China is contemplating retaliatory tariffs in excess of $200 billion and European leaders have spoken of a trade war with the United States costing the world economy $430 billion.
Against numbers like these no American president can ever hope to win a trade war against the entire world. At some point economic self-interest will find its way into the thinking of most Americans, hopefully in time for the November mid-term elections.
In the meantime we in Canada need to hang tough. Avoid products made in the United States. Stop travelling to the United States if possible. And support Canadian tariffs against U.S. goods. There’s a war on.
“Canada is much more dependent on trade with the United States than the United States is dependent on trade with Canada.”