What we learned from a vengeful Trump era
At the time, they were dark days indeed.
When Donald Trump took his place in the White House four years ago, the Canadian economy was suddenly besieged.
The early days of his tenure set the tone. There was the ban on travel from Muslim countries, immigration havoc, the move to “tear up” NAFTA, the blunt pressure on American corporations to expand at home — and certainly not abroad.
Then came the on-again-offagain NAFTA negotiations, the tariffs on steel and aluminum, the undermining of the global trade system, and the economic war with China. And the threats — unpredictable, sometimes real, sometimes just posturing, but always insidious in their chilling effect on trade and investment.
If Canadians breathed a deep sigh of relief during this week’s inauguration of Joe Biden, it’s in no small part because the constant worry about what will hit us next has dissipated.
We have emerged from the impetuous and vengeful Trump era and we are mostly still standing, although we have a few bumps and bruises, not to mention a lingering suspicion of our largest trading partner.
“I don’t think everything is totally fine,” says Brett House, deputy chief economist at Scotiabank and a close observer of the international trade file.
The “residual impact” of Trump’s years in office is certainly not as harsh for the Canadian economy as the former president had hoped, House said. “But it’s more lasting and durable than most of us would have wished for.”
Our greatest fears, at least at an economywide level, did not come to pass.
Four years ago, Canadian businesses and leaders alike were biting their nails. As Trump bullied American corporations to stay in or move back to the U.S. and expand their operations there, Canadian corporations revisited their own investment plans to decide whether it was still wise to expand in Canada. As Trump promised corporate tax cuts and threatened a border adjustment tax, foreign investors eyeing Canada did a doubletake.
We are muddling through on the investment front. Even as the pandemic took hold, Canada’s reputation as a good place to invest was still holding strong. Direct investment into Canada’s economy has lost some momentum, but that seems partly linked to oil and gas and not just a Trump effect.
Exporters were similarly nervous.
The trading relationship that had been ensured by the North American free-trade agreement for so long meant that Canada’s trade sector could simply assume their access to American markets, where almost three quarters of our trade goes, was safe. No longer, as the three NAFTA countries spent two years of turmoil only to arrive at an agreement very similar to the one they started with.
When Trump made good on threats to impose stiff tariffs on steel and aluminum imports, Canada’s exporters felt the pain. Steel and aluminum exports to the United States dropped to 10-year lows while the tariffs were applied.
Now, though, our trade with the United States seems to be on pace, as strong as ever, pandemic effects aside. The NAFTA was renegotiated, Canada’s access to American markets assured once again, and we have avoided further unpredictable tariffs.
Still, to really appreciate the Trump effect on Canada’s economy, we need to look at our trading relationship with China. The raging trade battle between the United States and China side-swiped Canada repeatedly, with China striking out at Canada’s meat and canola products in retaliation for Canada’s detention of hightech executive Meng Wanzhou at the behest of the United States.
The Meng dispute “has put a real freeze on Canada’s relations with China,” says Bob Wolfe, professor emeritus at Queen’s University. China’s detention of two Canadians is only the “tip of the iceberg” in the price Canada has paid for getting caught in the crossfire between the United States and China, he said.
And we need to look at the stability of the global trading system, that giant and dynamic sandbox that Canadian companies play in every day. Trump pulled out of the Trans-Pacific Partnership, undermined the dispute settlement system of the World Trade Organization and took a regular run at international trade rules that Canadian business leans on to ensure a level playing field.
That instability has left many scars, driving Canadian companies to develop more flexibility with their supply chains and customer base than in the pre-Trump era, economists say.
That’s costly, not just for individual businesses, but for Canada’s trade relationship with the United States over the long term, says House.
“A level of doubt has emerged about the United States,” he said.
There’s an upside to all this. The flexibility and resilience forced upon us by Trump sure comes in handy right now while we are dealing with the biggest recession in recent memory. But there were less traumatic ways to learn that lesson.