Canada: First break it. Then take it.

     "When Trump sees prosperity in any country other than the US, his prima facie conclusion is that country is ripping off the US.”

Trump has a strategy: Weaken Canada by wrecking its trade relationship with the USA. Then, with the country poorer and its citizens feeling ornery and wanting change, the U.S. can "rescue" them by taking them over.

Sandford Borins returns with a guest post laying out Trump's strategy, and what he thinks Canada must do in response. One of them so far has been one that affects me directly, or at least will when my vineyard starts producing wine for sale: a boycott of American wines in the nationwide effort to "buy Canadian."

Toronto wine store shelf, before tariffs.

Toronto wine store shelf, boycott underway.

Sandy is a college classmate. A Canadian, he is professor of Public Management Emeritus at the University of Toronto. In retirement he maintains his own website, where he writes about politics in Canada and the USA:   https://sandfordborins.com. This guest post was first published there yesterday. 

Borins

Guest Post by Sandford Borins

Win-Win or Win-by-Losing?

 Consider this scenario. A large firm and a small firm, the former ten times the size of the latter, are in similar lines of business. The smaller firm is seeking joint ventures or strategic alliances with the larger one. After the smaller firm rejected a merger, the larger firm is planning a hostile takeover. The smaller firm is looking for win-win options that make both firms better off. The larger firm is willing to suffer in the short term to make the smaller firm significantly worse off, which would make a hostile takeover less expensive. Thus, the smaller firm wants to create value and the larger firm wants to destroy value.

Fortress Am-Can or 51st State?

I think this scenario is perfectly applicable to the tariff negotiations between the U.S. and Canada. The Canadian Government is talking about joint ventures, integrated supply chains (for example automobiles), or what the Ontario Government calls “Fortress Am-Can.” Since he was elected, Donald Trump has continued to talk about Canada as the 51st state and the U.S. taking over Canada, with his latest word on the topic being “never say never,” in his Oval Office media availability with Prime Minister Mark Carney.

In the current tariff negotiations, the Canadian Government has lined up U.S. business leaders and politicians, especially Republicans, who share this win-win vision for their firms or their states. They realize that Trump’s tariffs will increase costs to Americans and reduce their exports to Canada. The problem is that the business leaders sometimes and the Republican politicians always seem unable to find their voice when talking to Trump.

Donald Trump’s vision appears to be to do as much damage as possible to the Canadian economy, with the expectation that impoverished Canadians will want to join the U.S. because they will then be financially better off.  Put differently, it’s a manifestation of Trump’s theory of dominance: If he kicks people in the face hard enough, they will bend to his will. Canadians’ reduced purchases of US exports and sharply reduced travel to the U.S., to which Trump has applied his all-purpose insult “nasty,” indicate a resolve to resist.

Trump’s plan to damage the Canadian economy is constructed on a sector-by-sector basis by shutting off access to the U.S .market and enhancing the access of U.S. businesses to the Canadian market. Steel and aluminum tariffs will choke off the major market for Canadian producers. Tariffs on automobile parts and assembly will harm the Canadian auto industry, which is predicated on access to the US market. Opening up Canada’s protected agricultural sector will hurt rural Canada. Trump would like U.S. banks to have access to Canadian retail banking thereby weakening the big six Canadian banks. Putting tariffs on film production in Canada for the U.S. market will kill the Canadian film industry. A rapid increase in Canadian defence spending will force the Canadian Government to take on billions of additional debt and likely to buy billions in U.S. weaponry.

I am not privy to the current trade and security negotiations between the U.S. and Canada, but if I am right that economic pain is Trump’s agenda, then these are the likely U.S. Administration proposals. It is hard to see what is in it for Canada, except the choice between immediate catastrophe or slow decline.

When Trump sees prosperity in any country other than the U.S., his prima facie conclusion is that country is ripping off the US. Thus, the U.S. Administration objective in the trade negotiations with Japan and the EU is to transfer wealth through U.S. tariffs and agreement of the EU and Japan to lower their tariffs and invest in the U.S. But these deals are not a prelude to attacks on their sovereignty.

What should the Carney Government do in this situation? The answers are self-evident but worth repeating.

No deal at all is better than a bad deal. Don’t accept the pressure of artificial deadlines. Canada already has a trade deal with the U.S. – CUSMA [known in the U.S. as the USMCA.] The current sectoral tariffs are a violation of CUSMA, and Canada should not accept them or any additional sectoral tariffs.

Second, Prime Minister Carney will have to level with the Canadian people. He may have to revive the campaign line “he wants to break us so he can own us,” if this indeed describes the Trump Administration’s approach to its negotiations with Canada.

Third, we will have to look for alternative ways to keep alive the sectors of the Canadian economy Trump is hell-bent on using tariffs to destroy. Bailouts are a costly and only temporary solution. We will need different markets, both domestic and export, and likely different types of products.

I would like to think that if there is some kind of deal between Canada and the U..S. this week it is along win-win lines. But I’m not betting on it.

 

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