Today’s article by Greg Ip in today’s Wall Street Journal an example of how, even the most important economic writers in the US, do not understand why Canada walked out on President Trump and his negotiators last month. To compare what is happening in Venezuela with Canada is without any merit. The Ip article made a series of statements trying to tie these two countries together as if each had similar political and economic characteristics in relation to the so-called “Dunroe” doctrine.
Ip wrote that :
“ Trump’s treatment of Venezuela helps explain why Canada broke off trade talks with the U.S. Yet, American officials seem puzzled that Prime Minister Mark Carney would risk trade war given the disproportionate cost Canada is likely to bear. “ Ip goes on to quote Treasury Secretary Scott Bessent that Canada is “ He’s not doing what’s best for the Canadian people”
Let's look at the costs Canada is bearing.
The costs to Canada from the tariffs that went into effort was largely a rounding error. Only 5 % of Canadian exports to the US or US $ 20 billion will be tariffed at the US border. Canada runs a $100 billion trade surplus with the US and so there will be little impact overall. On a wider measure, the tariff collected only amounts to 0.04% of Canadian GDP. Contrary to what US officials believe, Canada is not bearing a high cost by imposing tariffs on US$ 20 billion of imports. There are programs in place to help selected industries to adjust to lower sales and of profits from higher price imports. With 75% approval ratings, the Canadian government has unprecedent support.
Greg Ip further misunderstands the degree to which the US is dependent on Canadian resources and does not see the US as a threat to seize its resources as was in the case of Venezuela. Canadian oil exports account for 20% of all US consumption and 60% of its oil imports. True, the US is energy self-sufficient, but the location of its energy resources are not always near consumer markets. US farmers import 90% of their potash requirements from Canada; the only other world supplier is Belarus, hardly a convenient or reliable alternative. Finally, Ontario and Quebec are engaged in a highly integrated arrangement sharing electrical power cross border.
In announcing Canadian tariffs on an equal amount of US imports, Canadian officials made it clear that Canadian tariffs are strategically motivated , namely to hurt US states heavily reliant on the Canadian market, especially with the midterm elections so close by. The reaction from US governors and senators in states such as Michigan and Maine was swift in denouncing their opposition to US trade policies. Did the US expect Canada to take US actions lying down? Maybe the question should be posed : what will be the political fallout in some key states from loss of business resulting from US tariff policy.
The WSJ article suggests that Canada is taking a risk when it rejected last minute demands from the US affecting its sovereignity. No Canadian government would allow the US to veto any trade deal with other countries. Nor would any government allow the US to interfere with the nation's bilingual nature. These conditions not only cannot even be discussed, they cannot be entertained at any level. The fact that US officials raised these two issues so late in the day, makes one wonder how sincere Trump was about making a deal. Many Canadians, including this writer, suggest the US sabotaged the negotiations with these unacceptable last minute demands.
Greg Ip closes with a statement that reveals how ignorant he is about Canada when states “It’s an open question whether Canadian defiance will outlast a brutal trade war.” With 85% of all bilateral trade carried out in a free-trade agreement, it is not a stretch to think that Canada can continue to thrive, with or without Trumpian tariffs.
Last word: PM Carney made the unprecedented statement at a press conference that the “ US signs its agreement in pencil”. Trust above all else is what is lacking.
Comments
Log in or sign up to join the conversation.