The ONW Salon: Can The Trudeau Government Stop Trump Border Taxes?
January 20th brings the inauguration of Donald J. Trump as President of the United States. According to The Globe And Mail, a Trump spokesman says that Canada will not be exempt from measures such as a border tax on vehicles exported into the U.S. Is there anything Canada can do to protect its exports to the U.S. and save Canadian jobs? Is the Trudeau government doing enough to address the dangers for this country, trade and otherwise? Richard Mahoney, John Capobianco and Tom Parkin debate.
There is a lot of haziness about what is being proposed. It is possible that the Trump administration isn't clear. But I have not read that the new U.S. administration plans to impose a border tax on vehicles exported to the United States. What I have read, actually sourced from Trump officials, is that there will be a tax on investment that moves jobs out of the United States. Perhaps I have missed some source commentary - please correct me if so.
If this were only about moving jobs, then that would obviously be less detrimental than a tax on all our exports to the United States. A border tax on all exports would be extremely disruptive on existing supply chains. And, from a political diplomatic perspective, our governments may be reaching out to politicians and business leaders related to the supply chain to help them locate their interests. However, we need to realize that some in those supply chain will see this as threat - and others as opportunity. So a real interests assessment needs to be done before diplomacy happens.
We don't know what Trudeau's goals are in his proposed NAFTA renegotiations with respect to Ontario. Clearing manufacturing is critical. We've already been gutted by free trade - now the risk exists that the remainder will be destroyed by the elimination of free trade.
If the Trump administration is intent on placing a tax on all manufactured exports, a real question is placed on us - how do we respond? Meeting their border tax with our border tax may only prompt escalation. And if Trump et al are willing to go outside of WTO rules, the discussion is even greater: how do we engage in global institutions for our benefit? These may be questions coming at us and I believe we need to have more debate about our goals as a nation.
But, as earlier said, this may be less than feared. We need to stay tuned to specifics.
So we are finally here. As of January 20th Donald Trump will no longer be referred to as President-elect, the endless press conferences and events with outgoing President Barack Obama will stop and there will be a new order of things in Washington and across the U.S.
We have discussed on these pages a few times what exactly it means to us having President Trump at the helm. We know that he is for "America First" and has talked openly and often about tearing up NAFTA, but we all assumed he meant Mexico and not Canada.
Well, we recently heard from his yet-to-be official Press Secretary, Sean Spicer (who before the election was the communications boss at the Republican National Committee serving under Reince Priebus, who was himself the Chair of the RNC and will now assume the role of Chief of Staff) that that might not be the case.
Tom is absolutely right when he says that a border tax would be extremely disruptive to our economy given the trade that we do with the U.S. That is especially so for our fragile auto industry, which not that long ago needed to be bailed out by governments here and in the U.S. The industry still needs an infusion of subsidies to keep jobs in Ontario.
I was encouraged to hear a few weeks ago that PM Trudeau has sent his advisors to the U.S. to speak with some Trump officials to begin the relationship building that is so necessary given the over-the-top cosiness our PM had with outgoing President Obama. These meetings and the recent cabinet shuffle to focus on better cross border relations are both a good start, but we will need a strategy very soon to actually protect Canada from what could be a very protectionist President Trump.
It’s Trump time. And no one, not even Mr. Trump himself, knows what that is going to mean.
Trump campaigned on being unpredictable - said it was a virtue that would keep all of America’s competitors on edge. This is apparently how he rolls in real estate negotiations.
The problem is statecraft is something totally different than real estate deals - and being unpredictable to your allies and to your industries can be a problem.
The musings from Mr. Trump's press secretary on an export tax on vehicles is a potential disaster for both countries. First, to do so would be a violation of NAFTA - a treaty signed by the U.S. that can only be amended or abrogated by Congress. Mr. Trump cannot do that, whether he likes that or not.
Secondly, and more importantly, the auto sector in Canada and the U.S. is completely integrated. Cars are made every day with parts manufactured on both sides of the border - millions of dollars of auto parts pass over the border every day. So a car made in Brampton is full of U.S.-manufactured parts. And a car made in Flint, Michigan is full of Canadian-made parts. In fact, given the exchange rate right now, we have an $11 billion dollar trade deficit in parts - in other words, the U.S. auto industry benefits greatly.
Imposing a tax would cost thousands of jobs on both sides of the border.
That is why Prime Minister Trudeau smartly emphasized from the beginning how important it was to improve Canada-US relations. It is why he cleverly stayed out of the U.S. election, even when his critics in the NDP urged him to trash Trump. It's why he deftly moved last week to bring in the brilliant Chrystia Freeland as new Minister of Foreign Affairs, with the Canada-U.S. trade file as a key part of her mandate. Chrystia literally wrote the book on the challenge middle class jobs face in the current global economy. She understands the U.S. well, having lived and worked there, including a senior role at Reuters in New York. She is familiar with many of the political and economic leaders in the US.
As the Prime Minister said this week, the Trump administration presents challenges, but it looks like we have the A team on it. That doesn't mean it will be easy. But we have our best foot forward, and that should give all us some comfort as we head into the Trump tempest.
Is the sky falling? We really don’t know.
As far as I am aware, all this discussion is based on one utterance from one official. So let’s review it.
According to the official, the tax would apply "when a company that's in the U.S. ... moves to a place, whether it’s Canada, Mexico or any country seeking to put U.S. workers at a disadvantage." That's the whole utterance.
Let’s break that down. First, the official is signalling that this applies to companies that move, not companies already here. But, if we want to err on the side of caution, we may want to assume that companies currently in Canada might be subject to the tax if significant additional production is moved from the U.S. to Canada.
But there’s a second criterion – that the move is “seeking to put U.S. workers at a disadvantage.” That could mean a lot of things. But I take it to be about wage competition disadvantage.
As I read this, if production shifts from the United States to a country that has no wage cost difference, there’s no tax. If there’s a shift from the United States to a low-wage country, which undermines the wage bargaining power of Americans, there’s a tax.
That’s consistent with Trump’s targeting of China and Mexico, not Canada.
Liberals are in their glory when they are saving Canada from a crisis that they’ve conjured up. I’m not saying we’re out of the woods with Trump – in particular, I think we’re going to have a continued problem with softwood lumber – but I think it is best to keep our cool, stick to the facts and take a step at a time.
We’ve heard nothing from Richard’s super-fantastic world-saving Ms. Freeland. I think a good first step would be to know her interpretation of these words. If she knows more about this, workers and investors deserve to know. Otherwise, it's just shadow theatre.
I appreciate Tom's breakdown what the US official said or meant to say. I don't think that they are looking at the details of this right now, but rather the overall message of protecting U.S. jobs and ensuring trade deals are balanced in favour of the U.S., which isn't the case with Mexico and is to their advantage with us on more than cars.
The key thing here beyond making sure you are dealing with the right people is to continue to make Canada's economy strong and competitive so we are not negotiating from a position of weakness. The PM needs to determine what, if anything, can be negotiated and ensure he fights like mad to keep what is sacred to us no matter what the U.S. President says on Twitter. The relationship will certainly not be a chummy as it was with President Obama, but it doesn't have to be distant either.
There is a possibility that the new President and our PM will get along - all we care about is that the relationship is good enough to protect us from job killing, industry hurting cross border taxes. We have begun that process and time will tell. The new Minister of the U.S., er Foreign Affairs, will have a significant challenge and so far the expectations on the Minister to succeed are through the roof. I hope for our sake she succeeds - our economy is far from being where it should be.
As John said, Tom may well be right, and the argument he made that distinguishes Canada from what the Trump spokesperson said might well be sound. That said, it is kind of pricelessly uber-partisan for Tom to fault Ms. Freeland for not saying publicly yet that this does not apply. Mr. Trump isn’t even sworn in yet!
What we need is smart strategic diplomacy that puts forward Canada’s interest, not bluster. That has already begun behind the scenes - that's why Canadian officials and teams have already been in touch with Trump’s people and with their American counterparts. It's important to not start from zero on day one, and to begin establishing working relationships. Our U.S. Ambassador David MacNaughton has been busy working at this. This is where diplomacy comes in, and much of that is done piece-by-piece, meeting-by-meeting.
Both economies are incredibly intertwined. We are each other's largest trading partners and export destinations. We have the longest land border in the world, with millions of people and billions of dollars crossing that border every year. We have incredibly strong human and cultural ties. And that's why we need to be ready to work together to keep that going.
Yes it is Trump time and who knows where this goes? There will be speculation about the industries being affected - but in order to succeed, we need to continue to have the rich dialogue our relationship has had and demands. That work has begun. I look forward to observing some of this as I head down to Washington. Hold on to your...hats?
Richard Mahoney is a lawyer with deep experience in politics and governance. He is a former senior advisor to the Rt. Hon Paul Martin, a former Campaign Chair and President of the Ontario Liberal Party. John Capobianco is a Senior Partner and National Public Affairs Lead at FleishmanHillard. He has been a Conservative strategist with over 30 years of political activism at all three levels, including as a former federal Conservative candidate. Tom Parkin is a veteran NDP strategist and a frequent commentator on national issues.