National Post (National Edition)
How to fight a trade war
Surgical retaliatory strikes
You can always tell a Canadian by the fact that when he walks into a room, he automatically chooses to sit in the most uncomfortable chair, joked author Peter C. Newman.
But there is a limit to courtesy — and Donald Trump may just have ranged beyond it by suggesting Canada is a threat to American national security. The President has said the tariffs on steel and aluminum are being imposed to protect U.S. security — a provision he invoked to circumvent World Trade Organization statutes. But that’s a slander on all the Canadians in uniform who fought alongside the U.S. on battlefields from Flanders to Kandahar.
“For the President to play around with that does him no credit. Nobody with a brain could take him seriously,” said retired Maj.-Gen. Lewis MacKenzie.
“When I commanded a battalion of (Princess) Patricia’s, an infantry company from California was attached to us — they were just another company in our battalion.”
Trump has added injury to the insult by suggesting the tariffs are negotiable, if Canada caves to U.S. demands over the North American Free Trade Agreement.
Either there is a national security concern, or there is not. The suggestion that national security can be used as a bargaining chip threatens to rip up the rule-book that regulates the global economy.
In his news conference alongside Swedish Prime Minister Stefan Lofven Tuesday, Trump offered no hints of concession or compromise. “A trade war hurts them, it doesn’t hurt us,” he said, referring to America’s trading partners.
THE FOCUS INSIDE GOVERNMENT IS ON SECURING AN EXEMPTION.
The only prospect of relief from punitive tariffs would be for Canada to buckle unconditionally on contentious chapters in the NAFTA talks that the Trudeau government has already deemed “red lines” — rules of origin on autos and the investordispute resolution settlement.
So if Trump is testing the depth of the Rubicon, with a view to crossing, what can Canada do?
The focus inside government is, quite correctly, on securing an exemption. But striking a deal and retaining any level of self-respect might not be compatible. In that event, the preference appears to be the imposition of broad reciprocal measures on major U.S. steel companies.
However, that is a blunt instrument that leads to precisely the consequences Canadian policy-makers are now trying to avert — higher prices for consumers.
A more subtle response would be to examine what is driving Trump’s strategy, beyond an ignorance of the world trading system that is encyclopedic.
There is a special election in Pennsylvania’s 18th Congressional district, south and east of Pittsburgh, on March 13 to elect the successor to a disgraced Republican representative, who was dogmatic in his opposition to abortion until he got his mistress pregnant.
The race is neck and neck, but Trump has been campaigning hard for Republican Rick Saccone in a district the President won 58 per cent to 39 per cent in 2016. A Democrat win would give them momentum going into the fall’s mid-term elections, where they hope to take back control of the House of Representatives.
Trump’s tariff announcement is playing well in a district where companies like Latrobe Specialty Metals, Universal Stainless & Alloy Products and Kennametal are major employers.
Pennsylvania is also home to major multinational companies like Kraft-Heinz, Hershey, Mars and Cargill Cocoa. All of these companies export their products into Canada duty-free but most-favoured-nation rates (the tariff paid by countries with which Canada does not have a free-trade agreement) on chocolate and prepared foods range from three to 11 per cent.
A more sophisticated retaliation strategy would see Canada impose MFN rates on American products that can be imported duty-free from other trading partners.
Appliances would be an example where a 10-per-cent tariff on fridges and washing machines would put American producers like Whirlpool who manufacture in states like Ohio at a disadvantage to companies like LG of South Korea or Bosch of Germany, both of which enter Canada duty-free, without driving up the price for consumers.
It’s insanity, of course. The preferred option would be remove the only legitimate grievance Trump has with Canada, by opening up this country’s dairy, egg and chicken industries to more competition and arguing the case for liberalized trade. But no Canadian government is going to unilaterally dismantle supply management, unless it is part of some much larger design.
Reluctantly, the only way to get Trump’s attention may be to show him there is an economic and political price to be paid for blowing up the trading system that has been the basis for global stability and prosperity.
That may mean surgical retaliatory strikes. Even Canadians don’t say sorry after they’ve been punched in the face.