Canada is already preparing for Trump’s potential tariff threats

Canada staged a large-scale diplomatic deployment this week in preparation for a U.S. presidential election of more consequence than usual.

More than a dozen Canadian diplomats posted in various U.S. cities came to Washington to meet with scores of American lawmakers on Capitol Hill.

Looming over their visit was the potential return of Donald Trump to the White House. In particular, there’s one Trump policy they’re watching warily this year.

The former president has promised a worldwide tariff on imported goods if he wins. This would be stricter than any trade policy from his first term.

Trump has offered minimal details about the policy in his campaign literature and in media interviews but has said he envisions a 10 per cent global tax.

Would that apply to Canada?

Neither Canadian officials, nor Trump’s allies, have a clear answer on that. Trump has been vague about which countries and products might be included or exempted.

But Canada’s starting position, as one might expect, is that, no, there should not be penalties on a country — ours — that recently signed a free-trade agreement with Trump, which he has praised repeatedly as the best ever.

“We will have a serious conversation with them if they’re looking to apply that policy to us,” Kirsten Hillman, Canada’s ambassador, told CBC News.

“But I think the starting point is that it shouldn’t — and we have just concluded a deal that is 99 per cent tariff-free,” she said, referring to the new NAFTA.

Tariffs on Canada? Depends who you ask

It’s worth watching Trump’s platform closely, as current polls give him a decent chance of being returned to office in the November election.

Even in Washington there’s no clear consensus on what his policy might ultimately look like. Ask different people about tariffs on Canada, and you’ll get different answers.

“I have a hard time believing that would be the case,” Michigan Republican congressman Bill Huizenga told CBC News. “Especially when it comes to the trade agreement that he negotiated, and led.”

North Dakota Sen. Kevin Cramer says that’s exactly what he tells Trump: “We talk about these things a fair bit,” he said. “I think we should have a North American strategy. Not a U.S.-only strategy.”

An expert who supports Trump’s tariff policies says he’s not sure this will affect nations with free-trade deals; he suspects it probably will, but adds that Trump is attempting to do something unprecedented under modern law.

“There’s literally no precedent,” said Charles Benoit, a Canadian-born, U.S.-based trade lawyer with Coalition For A Prosperous America, a pro-domestic manufacturing group.

He expects Trump would invoke the Trade Act of 1974. Its section 122 allows a president to set a maximum 15 per cent tariff, for up to 150 days, in the event of a balance-of-payments deficit with other nations, which the U.S. consistently has.

He says Trump could then try extending it, again and again, every 150 days. This would certainly trigger lawsuits, as the law says extending it requires an act of Congress.

Benoit’s advice: Let it lapse for a day, then keep reimposing the tariffs every 151 days.

“I think that that’s something that the president could do. Just do it — [and] do it a second time after letting it lapse,” he said in an interview.

One of Washington’s best-known trade-policy experts over several decades says such behaviour would make a mockery of the language in the bill.

It would be challenged in court, Gary Hufbauer said. Meanwhile, countries would launch retaliatory tariffs.

As for Canada, here’s his prediction: The northern neighbour will get an exclusion, as would Mexico. But it won’t come for free.

He expects Trump to use the threat as a negotiating ploy — a stick to threaten Canada and Mexico into making concessions.

“He will bargain — to get something for that exclusion,” Hufbauer said, noting that when it comes to Trump, “[It’s] all transactional.”

As for what Trump might ask for, he’s already complained, as has the Biden administration, about the way Canada has implemented certain aspects of the new NAFTA. Specifically, dairy and autos.

“Dairy comes up right away,” Hufbauer predicted.

Parsing the words of Trump’s trade czar

One thing Trump has already succeeded at doing is reorienting the American political consensus on trade.

The current Biden administration has maintained most of his policies. The two presidents may differ in style, but they agree substantively on trade.

That philosophy has been articulated at length by Trump’s former trade minister. In his book and several magazine pieces, Robert Lighthizer has laid out some of the tariff policies Trump is now running on.

Lighthizer remains in the picture: He’s advising the Trump campaign, and recently said publicly that he intends to be involved in the next administration if Trump wins; either serving in an official role, or as an outside adviser.

His basic argument is that globalization has impoverished the U.S. working class; made the country incapable of producing vital goods; lost manufacturing industries that drive innovation; and left it dependent on a potential military rival (China) for basic everyday products.

He has little patience for people who call the United States protectionist, when it has among the lowest tariffs in the world.

And when it comes to Canada, Lighthizer’s book takes the country to task for seeing itself as a free trader, then adopting “parochial” and “protectionist” policies around everything from dairy to television to telecoms.

He said tariffs on Canadian and Mexican steel were useful; Trump imposed them, then lifted them, and threatened to reimpose them.

“The fact that President Trump was willing to impose tariffs on two of America’s closest trading partners — one of whom, Canada, is also one of our closest allies — sent an unmistakable signal that business as usual was over,” Lighthizer wrote in his book, No Trade Is Free.

Canada, Mexico defeat U.S. in auto part rules dispute

 

Mexico and Canada have won a trade dispute with the United States over rules of origin for auto parts, which could help protect Canadian businesses and jobs.

What next?

The tangible effects of Trump’s trade policies remain in dispute.

Several studies say his tariffs had a minimal positive impact on U.S. jobs, and a minimal harmful impact on the economy and inflation.

One trade economist and historian says Trump’s policies shifted some production from China, primarily to Vietnam and Mexico; meanwhile, China bought more food from Brazil.

“In the political debate, both the benefits and the costs [of tariffs] tend to get exaggerated,” said Douglas Irwin of Dartmouth College.

But what Trump is proposing now is bigger than his first-term tariffs, which the Congressional Budget Office said shaved 0.3 per cent off the U.S. economy.

Trump also wants Congress to pass a law that would allow reciprocal tariffs — massive duties on countries with high tariffs, like India and China.

Irwin says the real risk is that in the long term, Trump’s policies could trigger a domino effect, toppling the rules-based trading system, making commerce more political and less predictable and leading to tit-for-tat retaliation. He says countries that rely most heavily on the U.S. for trade are the most vulnerable.

“You’re right to be worried in Canada.”

Benoit takes the opposite view. If Trump managed to enact his entire agenda, with the biggest tariffs on Asia, he says Canada would enjoy a renaissance in manufacturing.

Instead of reflexively opposing some of these policies, he says Canada should offer to team up with Trump to impose similar tariffs against China.

“Canada should say: ‘We’re with you. We’re walking shoulder to shoulder with you,’ ” Benoit said.

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