Canada in for a bumpy ride

But we won’t fall off the U.S. trade wagon

Storm clouds but not a hurricane. That’s the economic forecast for Canada from senior Canadian officials involved in negotiations with the incoming Trump administration.

Canada will not be a target for new protectionist measures by the Trump government but Justin Trudeau may seek to accommodate Donald Trump by increasing defence spending and reviewing Canada’s United Nations mission to Africa, sources suggest.

The Trudeau government was delighted to hear Trump’s commerce secretary nominee, Wilbur Ross, tell his Senate confirmation hearing this week that the border adjustment tax will apply only to countries where U. S. judges have a record of unfair trade practices, like China and Mexico. It seems Canada will dodge a bullet by avoiding the protectionist tax that could have seen a tariff of 20 per cent levied on all Canadian exports to the United States. Canada is also likely to avoid being targeted by Buy America policies that would hurt Canadian companies bidding on Trump’s expanded public works program.

But Canadian policy will have to adjust to the new U. S. government. Sources suggest additional defence spending may be required to satisfy Trump that Canada is doing its part as a NATO ally. All NATO members signed up to spend two per cent of gross domestic product on defence by 2024. Canada spends less than one per cent and has shown few signs of making progress toward the two per cent target.

Tr u mp’s lieutenants are said to have conceded that Canada often punches above its weight in times of conflict, and that the quality of the contribution is as important as the amount of money spent. But some concession toward a bigger NATO contribution can be expected, perhaps in the upcoming federal budget.

A potential casualty of that commitment may well be Canada’s planned peacekeeping mission in Africa. Officials concede that it is not 100 per cent certain the mission to send up to 750 military, police and civilian personnel to aid a United Nations mission in Africa will proceed, as Canada attempts to accommodate a U. S. government less disposed toward the UN than its predecessor.

The Trudeau government gambled heavily on a Clinton victory and, when the unexpected happened, found itself ill- prepared for the incoming Republicans.

Fortunately for Trudeau, he was able to activate a political bat- signal that was answered by former prime minister, Brian Mulroney, who has decades- old relationships with many senior Republicans, including Donald Trump himself.

Mulroney was an old political adversary of the current prime minister’s father but has been well- disposed toward the son, and three years ago cautioned the Harper Conservatives not to underestimate the then new Liberal leader.

Canadian officials suggest the prime minister and Trump have made a strong start to their relationship, which is perhaps not surprising given the presidentelect’s fondness for rich, famous, good-looking people.

But there was one rocky moment, which Mulroney is credited with helping smooth, after Trudeau upset the Americans by lauding Fidel Castro. Canadian officials say the matter was not raised formally but they were aware Trump was angry, especially since he was in Florida, home to 1.2 million Cuban-Americans, at the time of Castro’s death.

Crucially, Mulroney’s contacts extended to Trump’s inner circle, including Wilbur Ross, Steve Schwarzman, the chairman of Blackstone private equity group, and f ormer New York mayor Rudy Giuliani. Mulroney spoke recently at Ross’s 79th birthday party and he sits on the board of Blackstone. Schwarzman is set to chair a strategic policy advisory committee that will meet with Trump once a month.

The former prime minister is said to have helped educate his contacts about the importance of the Canada- U. S. trade relationship to both parties, pointing out to Ross that Canada is the largest purchaser of goods from 35 states and buys more American products than the 28 countries of the European Union combined.

He is said to have argued the Trump administration will create major problems for itself in Congress if it introduces measures that hinder that two- way trade, as senators and governors in predominantly Republican states seek to undo job- killing legislation.

The word emerging from Washington seems to be that Trump is favourably disposed toward Canada, particularly after a full-court press by the Canadian ambassador, David MacNaughton, new Foreign Affair Minister Chrystia Freeland and Trudeau’s senior staff from Ottawa pushing the message that the economies of the two countries are too integrated to impose a border adjustment tax.

Having been caught by surprise by Trump’s election, the Trudeau government has done a commendable job in aligning itself with a potentially hostile administration.

With all the fights the new administration is about to pick around the world, the sense is that it does not want to have to scrap in its own backyard.

Canada is not a target. But as those battles play out — with China, with Germany, with Mexico — there is every prospect that this country will get side-swiped.

No one will be immune from a trade war involving three of the world’s four biggest economies.