As U.S. President Donald Trump’s Wednesday tariff deadline looms, there are worrying signs that Canadian manufacturers are going to pack up and move south of the border. This is unsurprising for a country that imposes high costs on businesses and seems to have resigned itself to being Trump’s whipping boy.
Last month, KPMG Canada released the results of a survey of 275 Canadian manufacturers conducted in May, which found that 42 per cent of them have considered, or are currently considering, moving production south of the border. Eleven per cent said they’re thinking of moving their head offices to the United States.
A few weeks later, the Financial Post reported that Vancouver-based Interfor Corp., one of the world’s largest lumber producers, plans to “shift its corporate and functional support operations” from British Columbia to Georgia, largely due to Trump’s crippling 45 per cent tariffs on softwood lumber.
Coercing manufacturers to relocate production to the U.S. is, of course, exactly what Trump hoped to achieve. It also explains why the president has singled Canada out for disproportionate punishment: while the U.S. can’t compete with developing countries on labour costs and moving operations from Europe is a costly endeavour, Canada is situated right next door, has an economy that’s already highly integrated with the U.S. and has relatively high wages and an uncompetitive tax system.
If these weren’t reasons enough to put Canada in the crosshairs, Prime Minister Mark Carney has shown little willingness to stand up to the bully next door. A year ago, he unilaterally removed most of the counter-tariffs imposed on American goods by his predecessor, only maintaining duties on steel, aluminum and automobiles to protect Canadian industry from similar U.S. tariffs.
It’s now apparent that this was a tactical mistake: Carney’s gesture of goodwill lost Canada a strategic bargaining chip, while failing to buy trade peace. Now, the Trump administration is citing Ottawa’s reciprocal tariffs on autos, along with booze bans imposed by some provinces in response to Trump’s trade war, as part of its justification for imposing 50 per cent tariffs on US$20 billion (C$28 billion) worth of Canadian goods.
Whether that actually happens remains to be seen: the president gets called on his bluffs so often, the acronym TACO (Trump always chickens out) has entered the English lexicon. Except once in a while, he kidnaps the president of Venezuela, bombs Iran or imposes tariffs on the entire world, ensuring everyone must remain on their toes at all times.
Regardless, the message to Canada, as explained by White House trade advisor Peter Navarro in these pages last month, is crystal clear: we will whip you as much as we want, and if you try to fight back, we’ll punish you even harder.
This position makes sense, given that most countries have quietly acquiesced to Trump’s tariffs. But Canada stands apart from the pack because we’re America’s second-largest trading partner , behind Mexico and ahead of China, and have had a free-trade agreement in place since 1989 .
In his first term, Trump railed against NAFTA, calling it the “worst trade deal ever made,” and renegotiated it as the Canada-U.S. Mexico Agreement (CUSMA). The fact that he now intends to violate his own agreement by imposing crippling tariffs on many CUSMA-compliant goods does not inspire a lot of hope for any future settlement — the man likes making deals, just not keeping them.
With this latest trade threat, the White House is hoping we’ll scrap our longstanding yet self-destructive system of supply management, restock provincial liquor stores with American booze and drop our counter-tariffs on automobiles, all before sitting down to renegotiate CUSMA, which is clearly a nonstarter.
The flurry of trade negotiations in Washington suggests the federal Liberals are hoping to make some minor concessions to avoid the threatened sanctions and head into the CUSMA talks with our biggest bargaining chips in tact. Yet even if such a strategy succeeds, Canada will be left with a weaker hand — and the White House knows it.
The alternative strategy — and the only one that appears to work with Trump — is to up the ante. This is the tactic that’s been employed by China and Iran, the two countries that have arguably succeeded in getting the Trump administration to back down.
When Trump escalated his trade war with China last year, the Middle Kingdom didn’t roll over, but instead raised the stakes, continually increasing tariffs on American imports to a peak of 125 per cent. At this point, the White House caved, dropping tariffs to 30 per cent, from a high of 145 per cent.
Iran also refused to yield after being hit with punishing American and Israeli airstrikes. Instead of taking the off-ramp offered by the administration, it continued blocking the Strait of Hormuz, which appears to have succeeded, as Trump is no longer insisting Tehran put a stop to its nuclear program. The Iranian regime knows that both Trump and the American people have little appetite for war, and have exploited it to their full advantage.
Both countries are bad actors, and I’m by no means suggesting we should get in bed with them or emulate their tactics. But Canada does more trade with the U.S. than China — purchasing over US$333 billion worth of U.S. good last year alone — which means that any retaliatory measures we impose could have a big impact on the American economy. And with the midterm elections looming, now would be the time to make our move.
National Post
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