How to bring an end to the Canada-U.S. tariff war

 

U.S. President Donald Trump has used the threat and/or implementation of tariffs to help his country gain an economic advantage over other nations in certain situations. 

The most recent country caught in The Donald’s orange crosshairs is Canada.  

During a campaign speech at a Whirlpool factory in Clyde, Ohio on Aug. 6, the President announced he would be restoring a 10 percent tariff on Canadian aluminum products that was briefly in place during NAFTA/USMCA renegotiations in 2018.  “My administration agreed to lift those tariffs in return for a promise from the Canadian government that its aluminum industry would not flood our country with exports and kill all our aluminum jobs,” he told the audience, “which is exactly what they did.”

Trump went on to say, “Canada was taking advantage of us as usual…To be a strong nation, America must be a manufacturing nation and not be led by a bunch of fools.  That means protecting our national industrial base.”

In retaliation, Canadian Prime Minister Justin Trudeau announced that evening on Twitter the decision to “impose countermeasures that will include dollar-for-dollar retaliatory tariffs.”  This will roughly come out to $3.6 billion. 

Deputy Prime Minister Chrystia Freeland also issued a statement which said in part, “In the time of a global pandemic and an economic crisis, the last thing Canadian and American workers need is new tariffs that will raise costs for manufacturers and consumers, impede the free flow of trade, and hurt provincial and state economies.”

Who has the upper hand in this North American-based tariff war?

An Aug. 7-9 web survey conducted by Leger and the Association for Canadian Studies found that 90 percent of Canadians and 58 percent of Americans expressed their opposition to Trump’s aluminum tariffs.  While it’s interesting that more than half of American respondents felt the same way as most of their Canadian counterparts, the results aren’t terribly surprising. 

The U.S. has had a long history with respect to tariffs and economic protectionism.  As a young nation, it introduced the Tariff Act in 1789 to protect its manufacturing sector from powerful international competition in France and Great Britain.  The Act also created a source of revenue for the fledgling U.S. government from tonnage contained on foreign cargo ships and other vessels.

Tariffs remained part of America’s economic puzzle well into the 20th century.  Ergo, Trump is following in the giant historical footsteps of other U.S. Presidents with respect to implementing tariffs.

This form of taxation, however, is usually treated with scorn by anyone who has a scintilla of respect for a free market economy.  Tariffs can cripple economies, damage businesses and weaken the global financial environment.  Although it’s been successfully used as a political tool by various world leaders like Trump, a tariff should always be utilized as a last-ditch effort rather than a first foot forward strategy. 

In fairness, Trump’s long-standing critique of Canadian-style protectionism has always been well warranted.  Our country has used this mechanism far too often, from softwood lumber and auto parts to supply management with dairy and poultry.  While it’s unlikely Ottawa would fully eliminate these anti-free market principles anytime soon, it would be nice to see them tossed into the dustbin of history.

Here’s the problem: Trump is no better.  The current President regularly employs economic nationalist rhetoric with respect to America First policies, “fairness” in trade, and restrictive tariffs and subsidies. 

What’s good for the protectionist goose is good for the protectionist gander, it seems.

If Trump wins re-election this November, it’s probably fair to say he’ll continue to use the occasional threat of tariffs and economic protectionism.  There’s obviously nothing Canada can do, or should do, if he chooses to use this harsh form of taxation with other countries.  But how do we, as a nation, prevent tariffs from being implemented south of the border every so often?

The U.S. and Canada should both commit to reducing tariffs by 25 percent or more this fiscal year, and eliminate harsh nationalistic regulations in sectors like dairy, softwood lumber, automobiles and electronics.  In other words, create a proper free market economy where capitalism can steadily grow, businesses can thrive and trade liberalization becomes an all-encompassing key to financial success.  

Canada should also eliminate any and all foreign ownership restrictions on American companies and others, while the U.S. should commit to reducing regulations, subsidies and tariffs on Canadian companies and others.  Beginning this process on both sides of the Canada-U.S. border would show good faith, a mutual commitment to financial prosperity, and a firm belief the North American economic engine can and will get stronger.

Is any of this possible to achieve with leaders like Trudeau and Trump at the helm?  That remains to be seen.

Photo Credit: CBC News

More from Michael Taube.   @michaeltaube

Michael Taube, a long-time newspaper columnist and political commentator, was a speechwriter for former Canadian prime minister Stephen Harper.

The views, opinions and positions expressed by columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of our publication.

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