Our leaders need to go into this round united and with eyes wide open
By: Stuart Culbertson
Three weeks ago, U.S. President-elect Donald Trump threw a scatter-bomb into the Canadian political and economic landscape with his threat to impose a sweeping 25-per-cent tariff on Canadian imports into the U.S.
Three weeks ago, U.S. President-elect Donald Trump threw a scatter-bomb into the Canadian political and economic landscape with his threat to impose a sweeping 25-per-cent tariff on Canadian imports into the U.S.
Solemn federal-provincial vows to a Team Canada approach to fighting this threat all sounded good until premiers launched madly off in all directions in support of very different regional interests. Seeing a divide-and-conquer scenario opening before him, Trump is now taunting Canada into considering joining his union as the 51st state.
All joking aside, to date, Canadian leaders have been stunningly quiet about this invitation.
Instead, we are beginning to draw up lists of U.S. exports to retaliate against if Trump’s tariff is imposed. Ontario even threatened to cut off hydroelectric exports to the U.S. — perhaps one of the surest paths to 51st state membership not dictated on our terms.
Meanwhile, Alberta pledges to ensure its oil and gas exports continue to flow. They constitute over one-third of our exports to the U.S.
As we ponder retaliation options, let’s not forget some fundamental facts. Canada is much more dependent on trade than the U.S. is on trade with Canada. In 2022, our combined imports and exports constituted almost 68 per cent of our national GDP. In the U.S., trade with Canada amounted to just under 27.4 per cent of its GDP. Conclusion: retaliation against our exports to the U.S. will have a far greater impact on the Canadian economy than reciprocal measures taken against U.S. exports will have on theirs.
Secondly, Canada’s trade with the U.S. is almost 10 times greater than our trade with our second-largest trading partner, China, and almost 20 times greater than our third-largest trading partner, Mexico.
Speaking of Mexico, a trading partner some in Canada would like to throw under or out of the free trade bus, it has now surpassed Canada as the U.S.’s major trading partner. Canada is No. 2, with China closing in. Conclusion: The U.S. economy is not only less dependent on trade than Canada’s but its more diverse range of trading partners would make it easier to withstand anything Canada might throw at it.
Since the conclusion of the Canada-U.S. Free Trade Agreement in 1987, Canada has run a trade surplus with the U.S. every single year — amounting to $64 billion US in 2023. Trump apparently considers Canada’s trade surplus as a subsidy paid to us by Americans — and has been known to routinely top up the “surplus subsidy” by one-third. Conclusion: What matters most to the president-elect seems transactional (a zero-sum matter of who’s getting more than whom) rather than strategic (what is actually being traded and whether any of it is so important to the U.S. that it should be exempted from tariffs — for example, Canada’s auto parts and energy exports).
When we spend some time to look behind the transactional numbers, we find a highly integrated economy in which a large share of our trade is more appropriately characterized as “managed” rather than “free”. In B.C., our softwood lumber industry has operated for almost 40 years under managed trade quotas concluded over successive bilateral negotiations. In central Canada, the automotive sector has operated under a managed trade framework since the 1960s. Today, auto supply chains are so integrated that a vehicle and its constituent parts can cross North American borders several times on the road to a final product.
Trump’s second pre-occupation seems to be with the state of the Canadian border. Stretching over almost 9,000 km with over 100 land border crossings, our fabled “longest undefended border in the world” is beginning to lose its luster. American leaders seem to be increasingly worried about our border as an easy pathway for illegal immigration to the U.S. While the numbers are rising, considerably fewer individuals are attempting to enter the U.S. illegally from Canada (200,000 in 2023) than the with almost 2.1 million attempting to cross from Mexico to the U.S. each year.
Nevertheless, Canadians should be profoundly worried about the security of our border, but primarily for another reason — our need to facilitate and safeguard the $3.6 billion in goods and services we export to the U.S. every single day. As a case at point, let’s return to February 2022 when our well-oiled, just-in-time delivery system of Canada-U.S. supply chains was disrupted for a week by a handful of border blockaders. The phone lines and media links lit up between Canadian and U.S. leaders.
Michigan Gov. Gretchen Whitmer protested that a few disgruntled Canadian truckers engaged in an illegal blockade had no right to bring Michigan’s economy “to its knees”. She cited an economic impact report that pegged the loss associated with auto plant closures and production slowdowns on working people and businesses in Michigan at over $50 million US a week. In Washington, Michigan Rep. (now-Senator-elect) Elissa Slotkin proposed a dramatic solution to shorten supply chains by calling for American manufacturing to be brought home.
“It doesn’t matter if it’s an adversary or an ally,” she tweeted. “We can’t be reliant on auto parts coming in from other countries.”
And these are Democrats representing a swing state. One can only imagine where MAGA Republicans would take this.
Retaliation against unfair trade measures is a common practice in international trade diplomacy. Indeed, Canada successfully deployed this tactic in 2020 when the first Trump administration imposed a 10-per-cent levy on Canadian steel and aluminum products. At that time, Canada avoided blanket threats in favour of targeting retaliation on products originating in the constituencies of influential U.S. lawmakers — for example, increased tariffs on Kentucky bourbon from the home state of then-Senate majority leader Mitch McConnell.
However, this time, not only are proposed U.S. tariffs higher and more comprehensive, the America-first hawkishness is more intense. Our leaders need to go into this round united and with eyes wide open.
The U.S. is in a position to inflict a lot more pain on Canada’s economy than we are on theirs. Our commitments to improve the security of our border need to have a strong eye on protecting our vital trade relationships as well as safeguarding against illegal immigration.
But let’s at least begin any upcoming trade negotiations with the U.S. by politely declining Trump’s invitation to become the 51st state.
