Time for Canada to act alone

I’ve been trying to moderate my Twitter consumption, but my goodness, did I go on a bender this weekend. Trade wars. The disintegration of the international order. “Betrayal.” Twitter was made for times like these.

That’s not to say that social media was helping matters. There was a lot of anger out there, raising the risk that politicians could be goaded into doing something rash.

The (trade) war dogs are on the loose. This pack is dangerous. There is no easier way for a Canadian politician to delight voters than to insist that Canada won’t be “pushed around” by obnoxious Americans. Prime Minister Justin Trudeau sprung his tit-for-tat tariffs without any discussion about whether it was a good idea. He appears to have guessed correctly that none of his opponents would set themselves up to be portrayed as siding with the Americans.

Canada’s need for instant gratification in the face of Trump’s insults is so strong that even Trudeau’s most aggressive political opponents are all-in on fighting a trade war they can’t win. Andrew Scheer, the Opposition leader, Doug Ford, the in-coming Conservative premier of Ontario, and Jason Kenney, the leader of Alberta’s United Conservative Party, all have volunteered for the fight.

So, the trade war is on. Experts insist that unfounded aggression must be matched with equal aggression; Trudeau’s plan to launch surgical strikes on products and companies from the states of important U.S. politicians has been widely praised as brilliant strategy.

If they say so. Still, we should acknowledge that the outcome of this gambit is out of our control. It depends entirely on the ability of members of Congress and industrial lobbyists to persuade Trump to back off. They’ve been unable to do that to date, but maybe this time is different? We can hope.

And while we pray for a Republican rout in the midterm elections this year and Trump’s eventual political demise in 2020, we should start taking care of things here at home. Because that we can control.

One of the biggest threats to Canada’s medium-term prospects is political risk. The volatile politics at the heart of the Kinder Morgan fracas could easily spread to other provinces.

Ford’s election in Ontario portends inter-governmental conflict, and a Quebecfirst party is leading the polls ahead of that province’s election this autumn. Come 2019, it could become very difficult to get big things done in Canada.

But maybe some of this universal outrage could be channelled to a more positive purpose? The sight of Conservatives lining up behind Trudeau presents a unique opportunity to achieve a national consensus on prickly economic issues, assuming the effort is wrapped in the flag and presented as the country shielding itself from Trump’s attacks.

Of all the tweets I consumed over the weekend, the most compelling came from James Moore, the former Conservative industry minister. He called on governments to “respond with action,” and offered a list of suggestions: “absolute free trade within Canada;” get to work on building the Kinder Morgan pipeline; ratify the Trans-pacific Partnership immediately and champion the agreement abroad; and lower taxes on investment in the fall economic update.

All good ideas, although I’d tweak some of them a little.

It’s beyond ridiculous that a country that sees itself as a champion of free trade on the world stage is incapable of erasing barriers to the movement of goods and services within its own borders. This probably isn’t the right moment to launch an aggressive push for interprovincial free trade since Quebec Premier Phillippe Couillard is distracted by the election. But surely some groundwork could be done in case anti-trump politics could be used to create the conditions necessary to overcome our own chronic internal protectionism.

The official line in Ottawa is that the ratification of the TPP has been held up only by the legislative calendar.

Fine, but that excuse has done nothing to silence speculation that Canada’s trade priorities have been dictated by the obsession with NAFTA. It is now clear that new North American trading rules won’t be sorted until next year, if then. So it’s time to move on. Some of the energy, resources, and political capital that have been reserved for the NAFTA talks should be diverted to other trade priorities.

Being among the first countries to ratify the TPP would send a signal to Asia that Canada is serious about diversifying beyond North America. Benoit Daignault, the outgoing head of Export Development Canada, sees just as much opportunity in Europe thanks to the Comprehensive Economic and Trade Agreement. Yet Canadian companies have been slow to exploit those opportunities, Daignault told me in an interview last month. They may need their governments to give them a push.

Moore’s call for immediate tax cuts is a trickier one. The case for broad corporate tax cuts is unsettled. “I used to do M&A, and I have never seen a merger that succeeded because it was driven by tax considerations,” Christine Lagarde, the managing director of the IMF and a former corporate lawyer, told me in an interview this month. “There has to be more than that.”

While lowering taxes on investment seems a good idea on its own, what Canada really needs is a comprehensive rethink on its approach to business taxation. The International Monetary Fund recommends a review, as does Kevin Milligan, an economics professor at the University of British Columbia and co-editor of the Canadian Tax Journal, which devoted its latest issue to making the case of for a comprehensive tax overhaul.

For whatever reason, Canadian governments have been afraid of taking a hard look at tax policy. So the final word to Moore, since he inspired this column: “No more timidity.”