President Donald Trump did a lot of jaw-jawing about trade in his first year in office, but now he’s moved on to war-warring. He appears to believe that he can Make America Great Again by making global trade a lot less free, again.
And the country that stands to lose the most? Oh, Canada.
Over the last century, Canada gradually moved from a protected economy to an open one. In 1989, Canada’s average weighted tariff rate on imports was 7.2 per cent. That was nearly double the U.S. level, and the highest in the G7.
Today, Canada has the lowest tariffs in the G7, at an average weighted rate of just 0.8 per cent. (Note to Mr. Trump: That’s half the U.S. rate.) Most goods come into Canada duty-free.
The change has mostly been for the good. It’s made Canada’s economy more efficient, raised output, lowered costs for consumer and business imports, and created new opportunities for exporters.
That’s what Mr. Trump is threatening. The tariffs he slapped on imported steel and aluminum, and his hints at similar measures on cars – both areas where Canada is America’s main trade partner – may be posturing for the ongoing North American free-trade agreement renegotiations.
But they may also be the first steps in dismantling the U.S.-built, rules-based international trading order. Mr. Trump’s rhetoric, during the 2016 election and ever since, has been filled with animus against trade. He likes exports. He hates imports. He fails to see the connection between the two.
Trade is not a zero-sum game. Yes, Canada gains from trading with the U.S., but that’s not because the U.S. is losing. And while putting up roadblocks to trade will harm Canada, our losses will not benefit the U.S. Mr. Trump is threatening to ditch a win-win relationship for one of “I lose, you lose more.”
American presidents used to get what Mr. Trump misses. For more than a century, Americans tried to sell Canadians on the benefits – the mutual benefits – of an integrated North American market. It used to be Canadian leaders who wanted to thicken the border.
In 1891, Sir John A. Macdonald won his last election by running against Sir Wilfrid Laurier’s Liberal proposal for freer trade with the Yankees. Macdonald portrayed it as a plot to turn Canada into the 51st state.
“A British subject I was born, a British subject I will die,” said Macdonald’s jingoistic election manifesto. “With my utmost effort, with my latest breath, will I oppose the veiled treason which attempts by sordid means and mercenary proffers to lure our people from their allegiance.”
That allegiance was to Canada as an independent part of the British Empire; the alleged treason was that free trade would surely mean American political annexation. Macdonald’s campaign slogan was, “The Old Flag, The Old Policy, The Old Leader.” Without Macdonald’s National Policy, whose tariff walls pushed trade to flow east-west rather than north-south, Canadians were told they’d soon be replacing the Red Ensign with the Stars and Stripes.
Two decades later, Laurier took another crack at it. As prime minister, he negotiated a treaty lowering Canada-U.S. trade barriers. It was the subject of the closely fought 1911 election. But when Champ Clark, speaker of the U.S. House of Representatives, said, “I look forward to the time when the American flag will fly over every square foot of British North America,” Canadian opinion soured.
Newspapers across the country ran an appeal from Rudyard Kipling, the era’s most famous writer. “It is her own soul that Canada risks today,” he wrote. To keep their souls, Canadians scotched free trade.
In the years after the Second World War, the world’s trade walls gradually came down, thanks to multilateral negotiations through the General Agreement on Trades and Tariffs and the World Trade Organization. And Canadians overcame their wariness of being sucked into the American colossus, signing the 1988 Canada-U.S. FTA, and its precursor, the 1965 Auto Pact.
Canada ended up with the economic arrangement it wanted, without the political arrangement it dreaded. Canada became to a large extent a part of the U.S. market, without having to become part of the United States.
And then Mr. Trump happened.
If NAFTA disappears, and a global tariff arms race erupts, what happens to the Canadian economy? And how should Ottawa react? More on that tomorrow.