Finance ministers mull options as Canada buckles up for trade war

It would have been, could have been and should have been a routine meeting of provincial and federal finance ministers, one of their regular gatherings to fine-tune economic and fiscal policy. Turns out it wasn’t routine at all.

At most such meetings, the federal minister, currently Bill Morneau, talks about how his insightful policies are creating jobs and economic dividends. Provinces talk about how much better conditions would be if only their interests ranked higher on the federal priority list.

When the finance ministers met last Tuesday in Ottawa, Morneau wanted to emphasize some decent employment numbers and prospects for economic growth. Bank of Canada governor Stephen Poloz gave a presentation. Chief financial officers from major Canadian institutions offered their economic perspectives. Among the provinces, some wanted an update on federal infrastructure spending, others to complain about the equalization program, which Morneau unilaterally has extended for five more years.

But the ministers ended up fixated on another topic entirely, and with good reason — because it’s the most disruptive challenge to Canada’s economic wellbeing in living memory. Under President Donald Trump, the U.S. is imposing tariffs on Canadian exports and threatening more to come.

Trade has become, by far, the top policy challenge for the federal government and for every province. Not since the raucous free-trade election of 1988 has trade been so dominant in economic and political life.

The greatest fear now is of a potential “Car-mageddon,” an economic catastrophe that will almost certainly happen if Trump’s threatened 25-per-cent tariff on non-U.S. cars and 10 per cent on parts stall the Canadian industry into a tailspin.

Canada’s parts makers already operate on razorthin margins, relying on technology, price competition and an integrated North American supply chain to stay in business. Sudden tariffs will disrupt all that and threaten 160,000 Canadian jobs.

“The economic stability of Ontario is at risk,” warns Flavio Volpe of the Automotive Parts Manufacturers Association. If Ontario staggers, so will Canada.

Trump’s tariffs on Canadian steel and aluminum are already damaging companies and jobs on both sides of the border. On July 1, Canada was set to retaliate with tariffs on a range of U.S. products.

But Ottawa and the provinces can do more to offset the effects of a trade war so needlessly destructive that, until Trump, seemed impossible. This is a

Sudden tariffs will disrupt all that and threaten 160,000 Canadian jobs.

time for co-ordinated action.

To start, employment insurance rules can be modified to protect affected workers. This has been used in the past to soften sudden disruptions like natural disasters or commodity price swings.

Quebec’s finance minister suggested finding ways to improve the business investment climate, short of a destructive race to the bottom on corporate tax rates.

Compensation should be made available to tariffaffected firms. Morneau suggested that was being considered, but didn’t provide specifics.

Federal agencies can redouble their efforts to broaden Canadian exports to non-U.S. markets. Canada can and will join Asian and European alliances on trade and explore emerging opportunities in Africa and Latin America.

Maybe the provinces finally will see the light and lower interprovincial trade barriers.

Above all, Ottawa must persist at the stalled NAFTA renewal talks, as hopeless as they sometimes seem. There are no guarantees in that process either, but for now, it’s the only option that can’t be abandoned.

(This editorial was published June 28 in the Halifax Chronicle Herald and distributed by The Canadian Press.)