The other wall he plans to build

There are many ways to lose money in the stock market.

There’s interest rate risk. When rates rise, dividend stocks tend to drop in value, which is why investors are worried about what the U.S. Federal Reserve Board will do.

There’s economic risk. A major slowdown in the economy will have a negative impact on corporate profits, driving down share prices.

There’s currency risk. That comes into play when you invest outside Canada and the foreign currency drops in relation to the loonie.

Then there’s political risk. That’s what we are facing if Donald Trump succeeds in his unorthodox but surprisingly effective bid to become the next president of the United States.

Trump has made building a wall along the Mexican border to keep out illegal immigrants one of the main planks in his platform.

But that’s not the only wall he wants to build. Taking his comments from Monday’s debate with Hillary Clinton at face value, he wants to build a wall around the entire U.S. — a massive tariff wall that can’t be penetrated by the Mexicans, the Chinese, and anyone else with whom his country runs a trade deficit.

That doesn’t include us; Canada had an $11.9-billion goods and services trade deficit with the U.S. in 2015. But that doesn’t mean we wouldn’t be sideswiped.

Trump didn’t use the word “tariff” during the debate, maybe because many of his supporters wouldn’t understand it. Instead, he talked about taxes. He railed at Mexico for imposing a 16-per-cent value added tax on goods imported from the U.S. “When they sell to us, there is no tax. It’s a defective agreement,” he said.

His answer is to impose countervailing taxes on products coming into the U.S.

“You want to move to Mexico or some other country, good luck, we wish you a lot of luck,” he said. “But if you think you’re going to make your air conditioners, your cars, your cookies or whatever and bring them into our country without a tax, you’re wrong!”

That segued into an attack on NAFTA (North American Free Trade Agreement), which Trump used to slam Clinton’s husband, Bill. “He approved NAFTA, which is the single worst trade deal ever approved in this country,” Trump said. “It was one of the worst things that ever happened to the manufacturing industry.”

(Actually, although NAFTA came into force when Bill Clinton was president, the original idea was conceived by Ronald Reagan who, with Brian Mulroney, signed the Canada-U.S. Free Trade Agreement in 1988. The NAFTA agreement was signed by president George H.W. Bush, Mulroney and Mexican President Carlos Salinas in 1992.)

Trump has other ideas about how to keep manufacturing jobs from fleeing the country, including cutting the corporate tax rate from 35 per cent to 15 per cent. That would certainly make business investments more attractive, although it would likely add trillions of dollars to the U.S. deficit. That’s their problem.

The tax (tariff ) barriers would be ours, along with the rest of the world. I don’t wish to be overly alarmist but the result could be a major blow to our economy.

Back in 1930, president Herbert Hoover signed into law the SmootHawley Tariff Act, which raised U.S. tariffs on more than 20,000 goods to unprecedented levels. This was at the beginning of the Great Depression, and congressman Willis Hawley, a co-sponsor of the bill, predicted it would save American jobs and usher in “a new era of prosperity.”

The result was the exact opposite. Other countries retaliated with their own trade barriers and world trade collapsed. The U.S. State Department reported later that global trade dropped by 66 per cent between 1929 and 1934. Hundreds of thousands of U.S. jobs were lost and the act was instrumental in prolonging the Depression to the end of the 1930s.

Let’s hope we aren’t about to see a repeat of that history. Gordon Pape writes for the Star Business section every second Saturday.

The GOP presidential nominee wants to build a massive tariff wall that can’t be penetrated by countries with which his country runs a trade deficit