Get ready for ‘Trump shocks’
As Canadians, we’ve actually seen this troubling picture before. It was back in the summer of 1971, when the Republican administration of Richard Nixon imposed a 10 per cent special “surcharge” on all (nonresource) imports entering the United States. It became known in Canada as the “Nixon shocks.”
Not surprisingly, this development sent enormous shockwaves throughout official Ottawa. Many in the Pierre Elliott Trudeau government assumed it must have been an oversight or a mistake by an illinformed Nixon White House.
There was talk of massive job losses in Canada, the need for government programs to assist the unemployed and it stood as a stark reminder that Ottawa’s “special relationship” with Washington had run its course.
Canadian officials were subsequently dispatched to Washington to set their U.S. counterparts straight. There was a general consensus amongst the delegation that once the Americans were briefed on the importance and integrative nature of the two economies, the Nixon administration would come to its senses and swiftly exempt Canada (as it had done in the past) from this punitive measure.
What they discovered to their horror was that Canada was specifically targeted by official Washington. U.S. officials were apparently angry with a onesided Canada-U.S. Auto Pact, unwelcome noises about placing restrictions on U.S. investment in Canada and a growing bilateral trade deficit.
The big brains in the Trudeau government were at a loss as to how to get the Americans to cancel the surcharge. Any thoughts of retaliation against the U.S. were seen as dangerously counterproductive and promptly dispensed with. Diplomacy (at both the bilateral and multilateral levels) would be the order of the day — and especially working closely with our European friends to plead our collective case.
As it turned out, President Nixon relented, largely because of Japanese currency alignment, European pressure and an improving U.S. balance of payments situation, and scrapped the measure in December of 1971.
Today, Prime Minister Justin Trudeau faces the ominous prospect of another Republican President, Donald Trump, embracing “Buy America” provisions, dismantling the NAFTA and imposing a 20 per cent “border adjustment tax” on Canadian imports. The fulfilment of any one of these moves would spell very bad news indeed for Canada.
Of course, Canadians are well aware of the stakes here: we export roughly 75 per cent of everything that we produce to the U.S. marketplace. It is the largest bilateral trading relationship in the world. Indeed, the U.S. market comprises something like 16 per cent of Canada’s overall GDP and Canada-U.S. trade amounts to $2.5 billion a day.
Moreover, millions of Canadian jobs depend on commercial access to the United States. And as the automotive sector amply demonstrates, the two economies are highly integrated. (It is often said that car parts move across the border seven times before the vehicle is finally assembled.)
Because of this economic dependence, though, a Trump border tax would inflict serious harm on the Canadian economy. And we should not kid ourselves this time around that an exemption or quick fix for Canada is somehow in the cards. It won’t be. So if President Trump does move to implement a border tax, the Liberal government will need to say firmly to our U.S. friends that restricting Canadian imports hurts U.S. subsidiaries operating in Canada, makes it more difficult for struggling Canadian companies to purchase U.S. products, and that we have only a small trade surplus with the U.S. We should also not be shy about reminding U.S. officials that Canada is the top trading partner for some 37 U.S. states — a number of which voted for Trump in November.
Diplomatically speaking, Canada will have to work in concert with other like-minded countries within multilateral fora to push back against the border measure. More important, Ottawa will have to utilize our embassy in Washington to lobby strenuously senior officials in the Trump White House, members of Congress (and particularly key committee chairs), state governors and friendly U.S. business interests (such as those in the auto parts sector).
Simply put, we will have to inform the Trump team that the scope of convergence between the two economies means that punishing Canada with a border tax is tantamount to cutting off your nose to spite your face. But we all need to realize that we’re now in a much different political universe than the one in the early 1970s. And I have to admit, it’s hard to know what strategy, if any, would work with such a blinkered and unpredictable Trump presidency.