CANADA’S BUSINESS PAIN HAS ONLY JUST BEGUN, SAYS KEVIN LIBIN.
Sure President Donald Trump’s first 100 days have been rocky. But Prime Minister Justin Trudeau’s next 100 days in office could be far worse. After Trump was elected, the Liberals understandably took a waitand- see approach before worrying too much about what he would do on trade and on taxes, even as the warning signs around them flashed ever brighter. Having waited, they can now clearly see the business end of Trump’s bulldozer, ready to run roughshod over our trade relationships and competitiveness.
On Tuesday came tariffs slapped on lumber exports. Then came ominous ultimatums making it clear we’ll be punished severely for our dairy system. Soon there was talk that the White House is preparing an executive order to open up a NAFTA withdrawal, which would be an immensely power- ful bargaining chip. And on Wednesday arrived Trump’s biggest threat to Canada: a cut to the U. S. corporate income tax that could vacuum away Canadian jobs and investment at a rate far worse than any timber or milk tariff might.
This could well just be the beginning of what could become a very long series of unfortunate events for our federal government.
Having decided NAFTA is no guide for fair trade, it will hardly matter to Trump whether our subsidies, quotas, cartels and barriers are technically legal but otherwise dubious. From ultrafiltered milk to stumpage fees, Canada has relied on the close readings of trade technicalities to stay one step ahead of a tariff war with the U. S. Those won’t cut it anymore.
Meanwhile, t he president’s battle to restore U. S. competitiveness is j ust warming up, right when Canada’s is looking weaker than it has in a long while. Business investment in this country is already anemic. As Jack Mintz noted last month, private investment in manufacturing and services, averaging less than eight per cent of GDP in recent years, is lower even than in economic basketcase Greece, significantly lower than in the U. S. and U. K., and l ess than half the level in Germany and France. The Liberal government no doubt has its own pet theories on the reasons for this, and its solutions are likely to include large doses of government meddling to spur investment and innovation. But Canada’s regulatory burden is now ranked by the World Bank as worse than two-thirds of our OECD peers. And yet more rules and regulations are being rolled out right now coast to coast, presumably to correct employee workplaces, investment advice, hot housing properties, power generation and, as always, the environment.
The U. S. is already several ranks better than Canada when it comes to the ease of doing business, but the Trump administration has nonetheless begun its crusade to streamline the regulatory state. Trump’s new chairman of the Council of Economic Advisors is Kevin Hassett of the American Enterprise Institute, an expert in transforming tax codes to better productivity. Naomi Rao, whom the president has put in charge of his plan to strip out two regulations for every new one, and weed out all the worst ones, has been hailed by free- market conservatives as a “superlative” choice, and by Democrats as an “anti-government extrem- ist.” She sounds wonderful.
This week, Trump is finally making his promise to slash the corporate income tax an official policy proposal. On Wednesday, he said he wants to see it slashed from 35 per cent to 15 per cent, while making foreign profits tax exempt. If he gets his plan, the average American business, after accounting for state-level taxes, will pay a 20 per cent rate. Canada’s average combined federalprovincial corporate tax rate, at 27 per cent, was once one of our greatest advantages in luring investment from the U. S. In a few months, it might look exorbitant.
Canadians naturally want to complain that Trump’s just a bully picking on us unfairly, but we all saw the tariffs coming on softwood lumber, with the most recent deal having expired more than a year ago. The trade challenge was instigated by U. S. producers, not the White House, and Hillary Clinton would have just as readily agreed to slap us with the initial duties. More importantly, the U.S. has rea- son to believe Canada is far from a free-trader in timber. Our governments have put bans on raw- log exports in the name of protecting Canadian sawmills and governments sell the logs to the industry. It’s worth noting that for softwood from J.D. Irving Ltd.’s private lands in New Brunswick — where stumpage fees aren’t distorted by government ownership — the new tariff is just 3.02 per cent.
Lawyers, politicians, academics, policy wonks and producers have spent decades disagreeing on whether Canada’s softwood is freely and fairly traded. If the timber trade were blatantly free and fair — no government ownership, no economic development subsidies, no export controls — we wouldn’t be debating it. There are dozens more sectors, including agriculture, banking, insurance, telecom, fisheries, pharmacies, engineering and culture, where Canada has grown too used to legally justifying its own protectionist measures, while counting on both the goodwill of gra- cious trading partners to go along with it.
More recently, the same complacency began settling in once again to our tax competitiveness. As our G7 competitors have trimmed away at corporate tax rates, Canada’s average rates only grew, moving us from one of the most attractive to one of the least attractive in just a few years. Trump’s tax plan will make us look much, much worse.
It was hard not to be impressed by the all-out charm offensive launched by Trudeau and his Liberal government after Trump’s election, apparently thinking that making fast friends would spare us from being targeted for the new administration. But there are too many easy targets here to ignore for a president looking to become a champion of American i ndustry, which i ncludes Wisconsin dairy farms and South Carolina foresters. When it comes to trade and taxes, Trump doesn’t need friends; he has only interests.