How Canada should respond to tariff threat

COMMENT

With the world on the brink of a global trade war, the president of the United States rushed onto Twitter to broadcast his delight.

“When a country ( U. S. A.) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” he advised. “Example, when we are down $ 100 billion with a certain country and they get cute, don’t trade anymore — we win big. It’s easy!”

Don’t trade any more. As always with Donald Trump, nothing about any of this is normal. The decision to impose tariffs on imports of steel and aluminum from every other nation on earth, proximate cause of the latest crisis, was made on the fly, without a word of warning to allies, Congress or his own officials, reportedly because the president was in a bad mood.

No details were released — what sorts of steel and aluminum would be taxed, whether there would be any exceptions and so on — for the simple reason that none had been decided, or even considered.

All the president knew was that he wanted to hit someone with something: because Jared was in trouble, because the U. S. has a trade deficit, and because, as he Twitters-plained, “our steel industry is in bad shape. IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!”

All of this leaves Canada, as the largest exporter of steel to the United States, in a peculiarly exposed position: too big to avoid being a target, too small to do much about it. Plainly blindsided, officials in the Trudeau government have sought refuge in vagueness, promising repeatedly to retaliate without ever saying how. The closest anyone has got to specifics is Foreign Minister Chrystia Freeland’s vow that Canada would take “responsive measures to defend its trade interests.” So: we will respond with … responsive measures. You ask, what is our aim? I can answer in one word: equivocation.

Which has it, of course, exactly right. Though the government will face demands to “get tough” with the Trump administration, to “send a message,” “stand up to the bully,” and so forth, the reality is that we have few options open to us — at least if the objective is to keep trade open.

In particular, we should avoid the urge to levy tit-fortat tariffs on imports of products from the United States, such as the Europeans are threatening to impose on American motorcycles, blue jeans and bourbon. Trade war is unlike real war in one crucial respect: the guns are pointed inward. The chief victims of any tariffs the Trump administration might impose in the name of protecting the American steel industry are other Americans: the industries that use the suddenly dearer steel, imported or domestic, in production; the consumers of the products they make, those costs having been passed on in higher prices; the workers in still other industries, consumers having that much less income left to spend on other things; and so on.

So it is with any tariffs we might impose in retaliation. The proper response to your neighbour shooting himself in the foot is not to shoot yourself in the f oot — a point someone might make to Ontario Premier Kathleen Wynne, for example, whose proposed Fairness i n Procurement Act, advertised as retaliation against “Buy American” measures that would limit Canadian firms’ ability to bid on government procurement in the U. S., will simply limit competition for the taxpayer’s dollar and drive up prices in the Ontario procurement market.

There might be something in mutual footicide, if there were some realistic prospect of diverting the Trump administration from its ruinous path, rather than inviting even worse in return. There is none.

The point has to be reemphasized: these people are not normal — not only Trump, but his Commerce Secretary, Wilbur Ross, and even more his trade adviser, Peter Navarro. All governments play at being protectionist from time to time: all have powerful interests to appease, or elections to win, or some larger strategic game in mind. With these people it’s genuine. They really do think the trade deficit is some kind of index of America’s net worth, and not simply an accounting identity, the necessary counter-entry on the national ledger to a capital surplus.

What should we do instead? There is a strong case for doing nothing, at least in the short term. As ever, it is unclear whether the policy Trump announces is likely to resemble the policy that is eventually adopted. His administration is divided; the Republicans in Congress are opposed; the World Trade Organization will probably find it illegal; and the president himself often changes his mind several times in a day on an issue, depending on whom he talked to last.

Canada has plenty of friends in the American political and media class, and interests beyond that who would be harmed by a tariff on Canadian steel, all of whom are well placed to point out the absurdity of a tariff invoked in the name of “national security” being applied to America’s partners in a defence manufacturing arrangement dating back to the Second World War.

If the tariffs cannot be averted altogether, it would still seem possible to carve out some exception for Canada. If they are applied to us, international trade comes with its own built- in buffer against such eventualities, in the form of a falling exchange rate: calls for “temporary” assistance for Canadian businesses seem equally misplaced. ( Either the tariffs are temporary, and the industries affected can ride them out, or they are permanent, and industry should adjust.)

But all right: if national pride dictates we must retaliate in some way, let me dust off a proposal once advanced by Jack Kemp, the late Republican politician and happy warrior for free markets and lower taxes. Rather than raise tariffs on American exports, why not lower them on exports of the same goods from other countries, giving them a leg up over the Americans in our market? The point is made, the punishment is delivered, without shooting off our toes in the process.