Thursday January 26, 2017

Why President Trump might not be the worst for Canada

Yes, the Donald Trump presidency is going to be bad. Yes, it might be a disaster. But it won’t necessarily be a disaster for Canada.

Consider Canada-U.S. trade. President Trump talks like he believes global trade is a form of war, and every day he threatens to start one. Canada is an exceptionally trade-dependent economy, and almost all of our trade is with the United States. Many of our industries have integrated, cross-border production chains. If President Trump wages trade war against any and all imports, Canada is going to suffer catastrophic collateral damage.

But much more likely, as Blackstone CEO and Trump economic adviser Stephen Schwarzman told Canadian government officials on Monday, is that the President will go after countries running big trade surpluses. That means China. It also means Mexico, which Mr. Trump consistently portrays as a stealer of jobs and exporter of illegal aliens. As a result, NAFTA is almost certainly doomed. 

But if NAFTA disappears or is sent into the limbo of renegotiation, the earlier Canada-U.S. free-trade agreement still stands, and still protects much (though not all) of Canada’s trade access. Given that Canada-U.S. trade is relatively balanced – Canada runs a small trade surplus with the U.S. when oil prices are high, and a deficit when they’re low – it’s unlikely that the Trump administration is going to want to make Canada a priority target.

Visibly steamrolling the Mexican economy will be popular with many voters from both parties. Ditto a trade fight with China. But attacking Canada? There’s no economic logic to it. Nor would there be much domestic political upside in starting a trade war with the place Americans consistently call their most admired foreign country.

Bottom line: The end of NAFTA is not a good thing. However, if the Trump administration stops there, it would mean a big hit for Mexico, but a relatively small hit for the Canadian economy. (Source: Globe & Mail)