Trade-Quake Reverbs

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HERE'S MY TAKE

How do you prepare for an economic earthquake? 

New tariffs on Canadian imports to the U.S. haven’t happened yet. President Trump didn’t make good on his threats of slapping a 25% tariff upon taking office through the executive orders he signed this week. But that doesn’t mean the quake isn’t coming. The U.S. president has commissioned a team to report by April 1 on how tariffs might work.  Meanwhile, President Trump has mused to reporters that he might impose 25% tariffs as soon as February 1 – a tremor that economic seismometers noticed. 

It’s difficult to prepare for the unknown. Some continue to believe the threat is overblown and the tariff threats are only negotiation tactics by Trump to get Canada to fix its leaky border, neglected defence, and rampant drug trafficking issues. Others believe that Trump’s affinity for tariffs is genuine. There is a logic to it:

1. 1. Slap stiff tariffs on imports.
   2. Use tariff revenues to fund tax cuts and soften the inflationary impact.
   3. Within a couple of years, manufacturing will move to the U.S. in order to access the American market. Tariffs will recover the jobs that globalization and trade lost.

The simple A-B-C seems to be what makes “tariff” such a beautiful word for President Trump. 

There is a third line of argument. It suggests that Canada is really a pawn in a global chess game between China and the United States. It really doesn’t matter what we say or do — the U.S. wants to force economic choices between China and itself for geopolitical reasons. While an early renegotiation of the U.S.-Mexico-Canada (USMCA) agreement (currently scheduled for review in 2026) would contribute to a restructured trade and security order within this broader frame, some would say Washington’s real goal is jockeying for power with Beijing; economics and trade are secondary. 

Whatever the motivation, the reverberations from a trade fight with someone 10 times your economic size has consequences. It’s hard to counter the impact that a 10% or higher tariff would have on 2.4 million Canadian jobs that directly depend on exports to the U.S. You can initiate COVID-style government relief but there is only so much money the government can print before the Canadian dollar and our standard of living start to fall. As a smart-alec runt who occasionally took on bigger kids in the schoolyard, I can attest that the smaller kid usually ends up at the bottom of the pile and has to cry “uncle.” The “dollar for dollar” retaliation rhetoric sounds bold but we had better be certain we understand what the U.S. is seeking before we enter an economic battle we can’t win. 

As I read the coverage and competing perspectives on how loyal Canadians should strategically respond to American tariff threats, I think some relevant contextual factors aren’t receiving the attention they deserve: 

1. 1. “Take what Trump says seriously but not literally” has almost become an axiom since his first term of office. The narrative has gone from tariffs on Canada on January 20, to studying tariffs until April 1, to possibly imposing tariffs on February 1 – all in 24 hours. Doubtless, there will be more musing by President Trump. It isn’t helpful to overreact each time. A decade of dealing with President Trump should remind us all that his consistent tactic is to adjust to what seems prudent in the moment, unshackled by the commitments he might have made yesterday. Until something has officially happened, it isn’t a sure thing. (That’s both scary and hopeful at the same time.)
   2. We need to consider threats within the larger framework and not in the immediate news cycle. A knowledgeable trade expert reminded me of former U.S. trade ambassador Robert Lighthizer’s important 2023 book No Trade is Free: Changing Course, Taking on China and Helping America’s Workers, so I re-skimmed it this week. Lighthizer argues “the once nearly unanimous Washington consensus on free trade is dead” and that a “worker-focused trade policy” should prioritize the rebuilding of America’s manufacturing base. The frame of Lighthizer’s book focuses on the Chinese “threat” to the American way of life. He argues that “economic decoupling” is a prerequisite for dealing with this threat. Canada and Mexico earn three chapters in the latter part of the book and it’s not all positive towards Canada. He suggests Canada was hypocritical in advocating for free trade in sectors where we had a trade advantage, but intransigent regarding sectors where protectionist measures already existed (with “Soviet-style supply management” being singled out as a primary example).

Lighthizer’s opinion isn’t necessarily President Trump’s opinion but there is good evidence that the president is influenced by this perspective. If this is the frame that is shaping American policy, any meaningful solution to the tariff dispute will require a longer-term articulation of how Canada will relate to the U.S. Short-term “carve-outs” and accommodations are only realistic to the extent we are seen as reliable allies. Concurrent with the discussion of how Canada relates to the U.S. is a necessary discussion on how we are going to approach China. That may be a whole other issue but they are related. 

With the U.S. our immediate problem isn’t trade; it’s respect:

1. 1. We’ve failed to live up to NATO commitments (a long-standing problem with blame enough for Liberals, Conservatives, and voters, as I’ve opined in this space earlier).
   2. We’ve admitted that we don’t take border control adequately by announcing a new $1.3 billion border plan in December (even if much of the rhetoric about the issue isn’t backed by data).
   3. We’ve neglected to invest in the strategic trade routes emerging in the far north.

All of these are long-standing issues that we’ve allowed to fester. If we want the U.S. to take Canada seriously as a country, we need to do the things that sovereign and secure countries do. 

Respect, however, also requires standing up for yourself and your dignity. President Trump used Wednesday’s speech at the World Economic Forum to repeat his suggestion that Canada should avoid tariffs by becoming the 51st state. Former prime minister Stephen Harper was perhaps the most eloquent in pushing back against these repeated taunts and suggestions that “economic force” might lead to the U.S. annexation of Canada. The metaphor is crass, but President Trump comes across as the boyfriend who offers his date some money to skip the proposal, forget the nuptials, and head straight for the bedroom. Understandably and predictably, his Canadian date is revolted to be seen as a prostitute. It doesn’t seem that President Trump understands it, but words of disrespect have consequences for the Canada-U.S. relationship. 

The issues of identity and history are also factors within the Canadian family. Many do not understand the depth of western alienation and the fundamental distrust of a Laurentian elite “Team Canada” approach to solving these problems. The economic devastation caused by the National Energy Program in the 1980s (which traumatically cost homes and jobs for many families) still frames western politics and dynamics. Appointing a few sympathetic Albertans to an advisory committee and buying out the Trans Mountain pipeline (after a long and tortuous process) does not undo the decades of history in which Alberta’s energy is treated as a national embarrassment. The complicated details of energy and environmental policy are lost when Quebec’s legislature passes a unanimous motion declaring that a pipeline is “not socially acceptable” in that province. So-called Team Canada assurances to western provinces that elites in Ottawa will protect their interests simply aren’t reliable and credible for most Westerners. Again, disrespectful words (and actions) have consequences for the relationship. 

The temptation to take advantage of the situation for domestic political advantage complicates the story. Most of the criticism has been directed at Alberta Premier Danielle Smith for going on her own to meet with President Trump and for not signing the Canadian first ministers’ communiqué. I would suggest there is plenty of short-term political showmanship on all sides that fails to put Canada first. The usual norms of issuing communiqués from first ministers conferences requires that they express consensus. The text is usually worded in a way so that everyone can sign. So why are the prime minister and nine other premiers not facing criticism for compromising the “Team Canada” approach by signing a statement without consensus? Let’s take it a step further. Where is the outrage for the prorogation of Parliament, which is preventing the passage of the funding required for the December border announcement? Why is Ontario Premier Doug Ford not facing a hue and cry for his seeming readiness to use the Canada-U.S. crisis to call an early Ontario election which is politically advantageous? It seems disingenuous for Premier Ford to argue that he needs a new mandate when he has 17 months of majority government mandate still before him. The pious pronouncements of “Canada first” considerations are in practice taking a back seat to “how do we leverage this for our own political advantage” right across the spectrum.

 It’s impossible to know how this will all unfold. There are many moving parts and the way they all interact – not any one action on its own – will likely determine the story. It was interesting to note that a survey of Canadian CEOs released this week shows “cautious optimism” for the Canadian economy in spite of the tariff threat. What I found encouraging was the focus on longer-term strategies to deal with productivity and innovation, which, more than the particulars of any trade deal, will most help us prepare for an economic earthquake. In the meantime, we watch events beyond our control unfold. While we do not know what the future holds, we can pass on whatever anxieties do emerge to the One who holds the future.

The Captain and Compass Search 

The present uncertainty regarding Canadian domestic and trade affairs will not be resolved until after the federal election. Until then, this Insights section will provide a brief punditry take on “the week that was.”

The deadline to enter the Liberal leadership race passed on Thursday, with seven official candidates having made their formal application, which required the first $50,000 of the $350,000 application fee and 300 supporting signatures. Each candidate’s launch hints at how the campaign is likely to unfold. Mr. Carney seems to have the most caucus support (37 official endorsements, although over 60 caucus members attended his Thursday evening reception) and is selling gravitas and his global experience as a crisis manager. Ms. Freeland is selling the story of her own sacrifice, having left a globally influential newsroom position to run for the Liberals when they were a third-place party. She is offering her success in the USMCA negotiations as proof of her skills. Ms. Freeland attracted the support of the most pro-Israel side of the caucus, and her launch was interrupted multiple times by pro-Palestinian demonstrators. Ms. Gould is the third cabinet minister in the race, though she is regarded by most as not a serious contender who is really just using the race to build her profile for the next round. Interestingly, she has articulated the most left-leaning agenda. It will be interesting to watch whether that wing of the Liberal Party membership coalesces into a coherent voice. The other four candidates are virtual unknowns, even to those who follow politics closely. Their application confirms that they have 300 friends, 30 of whom were willing to write the allowable $1,750 contribution (of which $650 comes back in tax credits) in exchange for 15 seconds of fame. 

One of the questions that will emerge post-leadership is how the Liberals and NDP will split the progressive base of the Canadian voting public. Interestingly, the carbon tax is almost certainly to be jettisoned by either of the frontrunners. I was curious to see how that would sell within the caucus but Environment Minister Steven Guilbeault publicly endorsed Mr. Carney on Tuesday, leaving one to conclude that there is an alternative environmental plan in the works that at least satisfies him. 

Meanwhile, the Conservatives are wasting no time with advertising campaigns that seek to define their potential opponents in the next election, which is not surprising given their significant funds. The Liberals seem to be trying to shift the frame from a “carbon tax election” and referendum on their decade in government to a “who can best deal with Trump” ballot question.

WHAT I’M READING

$10 for Your Daycare Thoughts

ChildcareCanada.org issued a report this week challenging the “odd assertions” by my Cardus colleagues suggesting that Canada’s $10-a-day daycare system wasn’t delivering on its promise. My colleagues noted that only 29% of Canadian children had access to licensed daycare and cited reports that parents with lower socioeconomic status “are less likely to enroll their children in regulated child care compared to parents with higher socioeconomic status.” Cardus estimates that if the federal daycare system spending went directly to families, parents would receive almost $3,900 per child, per year. Childcare Canada contends that would result in increased market rates for daycare. What the activists don’t discuss is that by funding only regulated daycare spaces while regulating all daycares, many independent childcare providers are closing.

Trump on Background

U.S. President Trump is a polarizing personality. Both his fans and foes are often bewildered that others don’t see what they do. I found it helpful to read this first-person account by reporter Salena Zito, who is often disparaged for being pro-Trump. It shows a side of Trump and his communication tactics in a very different light than what we usually see. Her candour is also insightful.

Court to Judge Official Secularism

Canada’s Supreme Court announced Thursday that it will hear a case alleging that Quebec’s Bill 21 violates Canada’s Charter of Rights and Freedoms. This law that promotes official secularism in Quebec uses Section 33 – “the notwithstanding clause” – to exempt itself from Charter provisions. The case is expected to be heard in the fall with a judgement not likely until late 2025.

A First-Person Perspective

With a hat-tip to Ross Douthat whose recommendation of this piece on X urged, “Come for the young men with Napoleonic interpretation of Trump but stay for the author’s revelations of academic-liberal culture,” I read Mana Afsari’s essay at thepointmag.com. It’s a first-person account of a young woman attending conservatism conferences dominated by young men, but it combines insights on gender, demographics, ideology and politics making it a unique and very worthwhile read.

MEANINGFUL METRICS

Putting Trudeau in Perspective

Expect plenty of analysis regarding Prime Minister Justin Trudeau's legacy as the date of his resignation approaches. In the meantime, I find the graph of his sliding favourability ratings fascinating. Apart from a sharp spike that coincided with the start of COVID, the data shows a consistent and steady decline. There are short-term ups and downs related to immediate events but the overarching narrative is a prime minister elected with a near +40 net favourability rating and leaving a decade later with a -50 rating. As David Colletto observes in his accompanying essay, the explanation for this is an open question. To what extent are Canadians growing dissatisfied with the progressive policy agenda Mr. Trudeau championed in gaining power, and to what extent are Canadians upset with the execution (or not) of that agenda? Notably, Canadian prime ministers have left before with low approval ratings. Brian Mulroney’s favourability was around +10, while Stephen Harper’s and Pierre Trudeau’s were in the low 20s. Subsequent history often prompted a re-evaluation of their time in office, of course. We also have to allow for the global context in which incumbent governments are unpopular and being replaced. That undoubtedly influences the Canadian numbers as well. It will be interesting to see how these numbers compare to the perception of Justin Trudeau a decade from now.

TAKE IT TO-GO

Waterslide for Sale

I can’t say I’ve ever considered buying a water slide, but my name isn’t Nathan Kember. He has a 900-foot water slide, now available for sale via Facebook Marketplace for a cool $150,000. If engaging in funky pursuits is a slippery slope, Kember’s at the bottom of the hill, where he also has a backyard six-hole golf course and a combination Sea-Doo golf cart for sale.

I know avoiding water hazards is best if you want to stay on par with your golf game, but mixing water and golf seems to be a driver for Kember. Reading the story and Kember’s willingness to sell the slide made me wonder if buying it was a mulligan for Kember. However, for my Take It To-Go purposes, this clipping was a gimme.

Hope you have a good week. Looking forward to being back in your inbox next Saturday morning.