There are few sights more unappealing than watching the mob goad the neighbourhood bully.
As Donald Trump accepted his Patriot of the Year award from Fox Nation last week, he spoke about threatening Justin Trudeau with 25-per-cent tariffs at Mar-a-Lago the previous weekend. “That’s just the beginning,” the president-elect said.
Some in the crowd began to chant: “51! 51!”, in reference to the comment Trump is reported to have made to Trudeau — that if Canada couldn’t survive such high tariffs, it could become the 51st state and Trudeau could become its governor. Trump laughed at the chanting, saying: “That’s an interesting statement.”
He was at it again in an interview with NBC’s Meet the Press that aired Sunday, in which he said the U.S. is “subsidizing” Canada to the tune of over US$100 billion. “If we are subsidizing them, let them become a state,” he said.
Some people, like former Trudeau adviser Gerry Butts, are urging calm, saying Trump made similar comments when he was in power last time and nothing came of them.
Former Trump lawyer Michael Cohen (who was convicted of lying to Congress) thinks the president-elect will march the U.S. military into Canada and Mexico, after seeing Russia and China amassing new empires.
That would seem highly unlikely, but not because the idea doesn’t appeal to Trump. He wants to renegotiate the world and leave it a very different place. His biggest concerns are border security and the trade deficits he has with Canada, Mexico and China.
But fighting isn’t his style. He’s a bully who uses coercion, threats and teasing as a way of dominating or intimidating.
More likely, he will use mercantilism as an economic weapon to try to get what he wants. There are plenty of historic precedents of countries using economic pressure for political ends.
Scotland voluntarily gave up nearly 400 years of independence, in part to escape the mercantilist Navigation Acts imposed by England. Those laws ensured only English ships could carry tobacco and sugar from the North American colonies, badly damaging the Scottish economy and leading directly to the act of political union in 1707.
Similarly, Trump is intent on “winning” the trade relationship with Canada.
But the U.S. is not “losing” to Canada, far less subsidizing it. Many factors influence trade flows.
Demand for imports is robust if the government is spending more (which Washington has been), if a strong dollar makes imports cheaper, and if the economy is going at full throttle, which it is in the U.S. (where the labour market is healthy and consumer spending increased 3.7 per cent in the third quarter).
The bilateral relationship with Canada is also heavily skewed by the fact that 60 per cent of U.S. oil imports come from north of the border and the oil price is double what it was four years ago. Canada’s exports to the U.S. totalled $594 billion in 2023, while we imported $373.7 billion from the States, according to Statistics Canada.
The trade deficit is not in itself a problem but for Trump, deficit means defeat and the U.S. is the victim.
Paul Krugman, the U.S. economist, argued recently that Trump may be able to reduce the trade deficit but would likely crater the amount of foreign investment coming into America in doing so, making everyone worse off. He pointed out that the North American auto industry is so integrated that tariffs would raise production costs and that they would invite substantial retaliation.
“My guess is that the Trump people have an exaggerated sense of U.S. economic power — similar in a way to the exaggerated sense of military power that was so widespread before we invaded Iraq,” he said.
Krugman pointed to an exhaustive study of the impact of tariffs that argued they lead to statistically significant declines in output and productivity, and result in more unemployment and appreciation in the real exchange rate.
“To the extent Trump succeeds, it will be for bad, economically disruptive reasons, damaging the world trading system and international capital markets,” Krugman concluded.
The results from the first attempt to tariff the U.S. to prosperity were not encouraging. Trump imposed tariffs on US$350 billion of Chinese goods and put duties of 10 to 25 per cent on imports of steel and aluminum. At the same time, he lowered taxes. Rather than narrowing, the U.S. trade deficit actually increased by around 50 per cent between 2016 and 2020.
To ignore the lessons of such recent history suggests the same tunnel vision as communists who believe that Marxist utopianism has only failed because it hasn’t been implemented properly.
Canadian markets have been remarkably sanguine in the face of Trump’s comments: the TSX index has gone up several points since November 5th.
Investors don’t seem to be taking the tariff threat seriously, confident that the administration would not risk rising gas, lumber and food prices (three-quarters of the U.S.’s frozen French fries come from Canada).
But Trump said on Meet the Press that he doesn’t believe that tariffs are paid for by consumers. “They cost Americans nothing,” he said.
The president-elect and his mercantile evangelists like Peter Navarro, who will be back in the White House as his trade adviser, see trade deficits as a threat to national security that can only be defended against by building a fortress, literal and figurative, along America’s borders. To Navarro, the U.S. has no trade allies, “only competitors that cheat and dump.”
Taking that thinking to its logical conclusion, it casts a new and chilling light on the AI generated image of Trump standing on a mountain range next to a Canadian flag and the caption: “Oh Canada.”
No-one should be freaking out, but neither should we be laughing at the bully kicking sand in our faces. The joke isn’t funny anymore.
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