If Canada isn’t safe in Trump’s trade war, no one really is
U.S. tariff threat has consequences for all
Mr. Kremlin himself was distinguished for ignorance, for he had only one idea, and that was wrong. — Benjamin Disraeli, Sybil, or The Two Nations (1845 novel).
U.S. President Donald Trump is poised to widen the trade war he launched late last month against Canada, the European Union (EU) and Mexico with his steep tariffs on U.S. imports of steel (25 per cent) and aluminum (10 per cent).
In coming weeks, Trump might, as he has threatened, go after the much bigger targets of the Canadian and Japanese auto sectors. And Trump is expected to impose tariffs on about $50 bil- lion worth of Chinese imports early next month. (All figures in U.S. dollars.)
And Trump announced Friday he will impose tariffs on about $50 billion worth of Chinese imports early next month. (All figures in U.S. dollars.)
Trump’s trade war won’t address the real threats to America’s future prosperity. (More on that later.) But it could tear apart an American-designed world economic order that, by and large, has served the U.S. and its allies exceptionally well.
The question now preoccupying world leaders from Berlin to Tokyo is, “If Canada isn’t safe from the U.S., who is?” Caught off-guard by the improbable imbecility of a U.S. administration, America’s allies erred in failing to anticipate that Trump might risk a global recession with his illegal tariffs.
True, Trump’s war might force Cana- dian exporters to finally get serious about cracking non-U. S. markets. And it might give impetus to French President Emmanuel Macron’s promising blueprint for sweeping reforms to the EU.
But it will injure major exporting economies Canada, Japan, Germany and Australia, and the U.S., as well.
Trump has long been obsessed with U.S. trade deficits, wrongly believing they undermine America’s economy. Economists are uncertain about the precise impact of trade balances. And few experts consider the kind of modest trade deficits America has recorded for decades to be a significant factor in economic performance.
In any case, existing tariffs among America’s G7 allies are very low. For example, the average EU tariff on U.S. imports is just 3 per cent, according to the Trump administration’s own figures. Indeed, America’s total trade deficit with the world, at $566 billion last year, equals a mere 2.9 per cent of U.S. GDP.
(Ignore the $800-billion figure that Trump brandishes. That’s America’s trade deficit only in exported goods, stripping out America’s impressive trade surplus in exported services, as noted in Trump’s White House economic report of last February.)
But Trump nonsensically sees trade balances as the definitive report card on U.S. economic performance. And so he means to eradicate U.S. trade deficits.
As Trump wrote 18 years ago in his book The America We Deserve, if elected president, he would “appoint myself U.S. trade representative … (and) our trading partners would have to sit across the table from Donald Trump and I guarantee you the rip-off of the United States would end.”
As it happened, Trump inherited from Barack Obama a dynamic economy whose momentum has taken the U.S. to new heights of industrial production, wage gains and corporate profits, and a 3.8-per-cent jobless rate that economists regard as full employment.
Trump’s war will injure major exporting economies Canada, Japan, Germany and Australia, and the U.S., as well
But when Trump is in thrall to a bad idea, he pursues it relentlessly, as in his lengthy, vain and racist effort to prove Obama was not born on U.S. soil.
Trump’s trade grievances simply aren’t valid.
The U.S. president repeatedly complains that on trade, “Everybody is ripping us off. We are the world’s piggy bank, and that ends now.” (Piñata is the word Trump is looking for, but never mind.)
Actually, a country that has a trade surplus with another country is not ripping off that other country, which is acting with free will in determining what it imports. And Trump is lying about America’s supposed losses on trade. In fact, the U.S. enjoys surpluses with many of its largest trading partners.
By Trump’s logic, the U.S. is ripping off those partners, which include, according to the Trump administration’s own data, Canada, the U.K., Brazil and Australia.
Trump lies like cheap broad- loom. Take his rallying cry about Canada’s supposed “270 per cent tariff” on U.S. dairy exports.
The actual average Canadian tariff on U.S. dairy imports is a mere 7.5 per cent. They rise to as high as 314 per cent only on dairy products, often niche products, that are in oversupply — a small fraction of total bilateral dairy trade.
If Canadian tariffs on U.S. dairy were unreasonably high, as Trump has it, how to explain America’s two-to-one trade surplus with Canada in dairy trade?
“Trump’s use of 270 per cent to besmirch Canada’s overall trade policies is disingenuous,” Scotiabank economist Derek Holt wrote in a research note.
“Better judgment would question whether an entire trading relationship needs to be jeopardized in order to appeal to dairy farmers in Wisconsin.”
Only with China does the U.S. have a substantial trade deficit.
America’s $385-billion goods and services trade deficit with the People’s Republic in 2016 (the latest figures reported by the U.S. government) equalled a whopping 59 per cent of U.S.-China trade that year. China alone accounts for more than half of America’s trade deficit with the world.
Certainly, the West has issues with China. No country matches China in its rampant global theft of intellectual property. China refuses to dismantle its formidable tariff and nontariff barriers. And for years China has been dumping its oversupply of steel and aluminum in the Canadian, U.S. and EU markets.
But China is an export-driven economy, heavily reliant on the goodwill of the countries that buy its products. That gives the West leverage to draw China more fully into the community of nations.
Of necessity, that task must be a joint venture — an impossibility with the current division between the U.S. and its allies. Example: Trump’s regard of Chinese dumping as a uniquely U.S. problem, and not one that also afflicts Canada and the sEU, rules out a united front against Beijing to stop the dumping.
Observers of generous spirit will laud Trump’s tactic of shaking things up, the goal of today’s populist movements worldwide, including Doug Ford’s Ontario.
But Trump is dealing with adults, who will not cave to his demands.
They will instead strike back, dollar-for-dollar, with retaliatory measures, as the Trudeau government has already done, and as China and the EU are preparing to do. At best, the resulting prolonged trade war would be a drag on global economic growth, and at worst trigger a replay of the Great Recession of 2008-11.
As noted above, Trump would be better occupied tackling the real problems that imperil America’s future prospects.
Those include confronting America’s widening gap between rich and poor; the abysmally low K-12 standards of U.S. education; and a hostile Trump immigration policy that, among other damages caused, is driving Silicon Valley talent to Canada.
The alarming size of America’s national debt is likely unsustainable.
Steep tax hikes lie ahead for an unfortunate future U.S. president and Congress, lest America become effectively insolvent. History will regard Trump as a buffoon, of course. But that fact has dulled the world’s recognition of how dangerous he is.
And that, as Trump would say, must end now.