Doug Ford was just trying to help.
One of the insufficiently appreciated aspects of the U.S.-Canada trade relationship is that the two nations’ bilateral trade has long been pretty close to being in balance. That doesn’t actually matter very much, economically—the United States could run a large trade deficit with Canada indefinitely with no ill effect—but, if Republicans are worried about bilateral trade balances, the U.S.-Canada relationship isn’t the one that they should be getting their dresses over their heads about. The United States does not run a particularly large trade deficit with Canada, and the negative balance of trade that does exist is driven largely by Canadian energy exports to the United States—mostly crude oil bound for Midwestern refineries where it will be made into diesel to power American trucking and transit. (Canada’s heavy oil is a more efficient source of diesel than is the light sweet crude pumped in West Texas.)
There is also the matter of Canadian electricity exports to the United States, which come from both Ontario and Quebec. When Ontario Premier Doug Ford threatened to lay a 25-percent tariff on electricity to 1.5 million U.S. homes and businesses (or just switch off the juice entirely) as a response to Donald Trump’s idiotic trade war, he was only offering to do what could be done to eliminate the small trade imbalance that exists between the countries.
But Donald Trump is, as he will tell you, the world’s greatest negotiator, and he feels the need to renegotiate the existing U.S.-Canada trade deal, which was negotiated by an utter incompetent: Donald Trump, whose administration oversaw the replacement of NAFTA by the (rather lightly modified) USMCA the last time he was president. And now Canadians have learned what banks, investors, vendors, small business partners, wives, ex-wives, and pornographic performers rapidly approaching their expiration dates have all learned over the years: If you think you have a deal with Donald Trump, you are a fool.
“Canadians are outraged,” a prominent, Trump-friendly Canadian manufacturer with operations in both Canada and the United States told me. (He asked me not to use his name; Canada is a small country where political sensitivities matter to business.) “Absolutely outraged. They feel there was a deal, and it was Trump’s deal, the USMCA. Canadians are friendly and passive and not very entrepreneurial, but they don’t shrink from a fight. If Canadians feel like they have to take a hit on their standard of living rather than submit to threats and blackmail, then they will.”
“Trump has unified every social class—the rich, the middling, and the poor,” he continued. “We’ve been a very pro-American country, fighting in Afghanistan and losing boys there trying to support the U.S. where we can. Sentiment in Canada in the last 10 to 15 years probably has been more pro-American than at any time since I’ve been alive. Then this kick in the head. It’s been really traumatic, and it’s not going to be forgotten.”
Not even when there is a change in administration, the manufacturer added—the damage done by Trump will last a generation or more. “I’m puzzled. It doesn’t make the slightest bit of sense,” he said. “We’re not a low-wage competitor, not China. We’re generally pro-American and of significant strategic interest to the United States—the most important national security ally America has. All Trump has done is to energize the Liberals and make it so much more likely that they’ll be elected.”
Indeed, with an early election on the way, the party of Justin Trudeau has doubled its standing in the polls since Trump launched his autarkic assault on the northern front and now leads the Conservatives, who had been poised for a romp under Pierre Poilievre, a libertarian-oriented Blue Tory who would have been the beau idéal of a Canadian leader for the American Right before it lost its collective mind.
Canadians have learned what banks, investors, vendors, small business partners, wives, ex-wives, and pornographic performers rapidly approaching their expiration dates have all learned over the years: If you think you have a deal with Donald Trump, you are a fool.
Trump seemed surprised by the intensity of the Toronto premier’s response to U.S. trade bullying. They might consider that Trump is, as usual, less than fully in command of the relevant facts. Doug Ford had expended a great deal of political capital on building an incentive program to attract electric vehicle and battery manufacturers to Ontario—and had enjoyed a remarkable degree of success in getting commitments from European firms. Now, those investors are starting to walk away from some $100 billion in planned projects. A big part of Ontario’s attraction had been tariff-free access to the large and rich American market, of course, and now that the U.S. has definitively shown that it is only one election away from abandoning any and all international commitments—from NAFTA to NATO—that advantage has evaporated.
Unhappily, Canada has been economically a lot more like slow-to-stagnant Western Europe for the past 20 years than like its dynamic neighbor to the south. Canada’s real GDP per capita today is only about 13 percent higher than it was two decades ago; U.S. GDP per capita has grown more than twice as fast in those same years. That isn’t the hallmark of a country that has been getting fat by ripping off its neighbors—it is the hallmark of a country desperately in need of market-liberalizing reform and better governance.
Instead, it is likely to get more of the Liberals, meaning more daft economic nationalism and relatively well-scrubbed left-wingery. It won’t be enough to get Canadians to forsake their sovereignty and sign up to be part of the United States. But it won’t be great for them—or for us. Donald Trump may be too thick to get it, but a poorer Canada means a poorer United States. When you’re a rich country, it is good to have rich neighbors and rich trading partners. With all due respect to our friends to the south, imagine how much better the United States would be with two neighbors like Canada rather than having Mexico and its problems in our backyard.
“My American friends say to me that, after Trump, things will go back to the status quo ante,” that Canadian tycoon said. “But that’s not the way Canadians are going to see this. If I were an American, my biggest concern would be on the national security front. We’re not going to get chummy with China or anything, but, if you visit Canadian military bases, you’ll see that they are crawling with U.S. personnel—you’d never even know some of them were Canadian bases. There is huge cooperation on the military front. America doesn’t defend Canada to protect Canada—America defends Canada to protect America.”
But, as they say, it’s an ill wind that blows no one some good. A stronger center-left may not be good for Canada in the long run, the industrialist noted, but it’s not all bad for export-oriented Canadian manufacturers like him: “Stephen Harper loved business and the [Canadian] dollar was at 105 cents. Trudeau craps on business, and we get a weak Canadian dollar—which is great for us. As manufacturers, a weak [Canadian] dollar means we have less to fear from American exports to Canada and much more competitive exports to the United States. Ironically, Trump has boosted the [U.S.] dollar everywhere, which is really bad for American competitiveness. How the hell are they going to compete exporting with such a high dollar?”
(There’s a solution to that problem: Keep running deficits that are 6.5 percent of GDP and the strong-dollar problem will take care of itself. But nobody will enjoy it while that gets sorted out.)
Some problems just don’t get fixed. The last time Trump launched a trade war, it was hell on the U.S. soybean industry, which lost Chinese customers to Brazil. Previously, there had been a seasonal tradeoff: U.S. producers sold northern hemisphere soybeans in their season and the Brazilians sold southern hemisphere soybeans in theirs. When Beijing put the kibosh on U.S. imports, Chinese soybean importers doubled up on their orders from the southern hemisphere and built storage—and the storage stayed in place after the trade war was over. The numbers go up and down, of course, but in the most recent report, U.S. soybean exports were about a quarter less than they were when Trump first took office in 2017; with the exception of the 2020-21 season, U.S. soybean exports have not matched their 2016-17 level. The U.S. government paid them tens of billions of dollars in subsidies, but Trump wrecked their markets.
Likewise, those EV and battery plants that aren’t going to get built in Canada aren’t necessarily going to get built in the United States, either, and the benefits that would have been derived from them—benefits to producers, consumers, investors, workers, and tax-collectors in both countries—most likely will simply never be realized. As Frédéric Bastiat observed, we go wrong in our economics when we account only for the seen while overlooking the unseen. It will be impossible to account for the opportunity cost of Trumpism—and not only vis-à-vis North American trade. But we’ll feel it, even if we can’t quantify it.
Of course the Canadians are angry. Americans should be even angrier.
