Trade war may have been started by Trump, but it’s up to us to end it
If there was any doubt before, the testimony this week from business leaders, union reps and various experts before the House of Commons’ international trade committee should make it clear: the Trump trade war is real, and it’s going to hurt.
Speaker after speaker showed up in Ottawa to talk about the impact of U.S. steel and aluminum tariffs and the potential impact of threatened tariffs on auto imports. Companies will go under. Jobs will be lost. Consumers will pay more. Government will, too, in the form of support for affected industries and workers.
There are worse kinds of war, obviously, but this one seems so bad because it is so senseless. Nobody (apart from Donald Trump and his coterie of economic advisers) really wants it. Nobody (apart from Donald Trump and his coterie of economic advisers) thinks it’s going to turn out well. And nobody really knows what’s next — apparently not even Donald Trump and his coterie of economic advisers.
Whether from the flip-flops on the Trump administration’s plans to target Chinese foreign investment this week, or from Commerce Secretary Wilbur Ross’s tortured Senate finance committee testimony earlier this month — “We do not have a trade deficit of note (in steel with Canada); we have a surplus in dollars; we do not have a surplus in physical value” — the impression is not so gradually forming that the White House doesn’t really know what it’s doing on trade. As Bob Lutts of Cabot Money Management told CNBC, “I really think they’re making this up as they go along.”
You can see the frustration and uncertainty in markets, which have been whipsawing on signs and signals from the White House about how hard, or not, they are going to be next on China, or Europe, or Mexico. Or whomever.
Perhaps this disorder is a sign of weakness, and something to be exploited by the targets of Trump’s trade-related ire, like Canada. And perhaps the dishevelment will catch up with the U.S. The war that nobody wanted is already having some unintended consequences.
For instance, the European Union squarely targeted HarleyDavidson — an iconic American brand if there ever was one, and whose home base is in heartland Wisconsin — when it introduced tariffs in retaliation to U.S. steel and aluminum levies. This week, the iconic motorcycle manufacturer announced it was responding by shifting some production to Europe to avoid the hit. So Europe gains jobs, and Trump loses, all because of his own trade policy. (The embarrassment inspired him to take to Twitter, of course, where he inaccurately accused Harley-Davidson of using tariffs as an excuse to ship jobs out of the States it was going to export anyway.)
Maybe the H-D story is a small victory for the anti-protectionists — We told you so, Donald! — but it might be a pyrrhic one. The fact is, the same imperative driving Harley more deeply into Europe — avoiding tariffs — might end up doing the same thing for the States. Given the 25-per-cent tax on steel imports, Canadian steel companies would be remiss if they didn’t consider setting up shop south of the border — it’s just a matter of survival.
If the tariffs on auto imports that Trump has threatened come to pass, business investment in Canadian manufacturing could plummet, and much of it will migrate to the States, which is already offering incentive enough with its (completely unnecessary) new tax stimulus. (Never mind that all the inward investment will only make the U.S. current account deficit worse.)
The question is how long this idiocy is going to last, and what the long-term effects are going to be. Canada already lost more than 450,000 manufacturing jobs between 2000 and 2009 (the Great Recession accelerated the declines), and while much of that can be put down to automation, disinvestment played a big role, too. If U.S. tariffs on the auto sector come into force, who knows how the manufacturing supply chain, and corresponding investment, will realign. The effects might be difficult to reverse.
Given the stakes, America’s trade partners obviously have to do more than give in to the temptation to beat their heads upon their desks repeatedly in frustration. For Canada, some form of relief for companies and workers affected by the Trump tariffs seems to be predestined. But that’s only a Band-Aid. And hitting back with retaliatory tariffs will only increase the bleeding, however popular they make our politicians feel in the short term.
No, Canada must try to find a way out of this mess, however much it’s not of its own making. Waiting for the midterm elections, in hopes Trump will lose a docile Republican Congress, shouldn’t be an option. Prioritizing a swift resolution to the NAFTA renegotiation should be Job 1, since it’s pretty clear that the U.S. steel tariffs were implemented to pressure Canada and Mexico into a deal. As irritating as some of the Americans’ demands are, Canada should be prepared to give Trump every bit as much as he needs to claim victory (but no more). Our cherished supply management system seems a good place to start.
Meanwhile, Canada has to cover its bets by broadening and strengthening our non-U.S. economic alliances. We should have been more serious about diversifying trade partnerships for a long time; now we don’t have any choice. Getting the latest version of the Trans-Pacific Partnership ratified in the House would be a good place to start.
As Douglas MacArthur said, “When war is forced upon us, there is no alternative than to apply every available means to bring it to a swift end.”
This is war, and it’s one we can’t win. And we need to try to end it.