Photographer: Brent Lewin/Bloomberg
Canada

Trump the Bully Even Picks On Friends

There's no rational reason to punish Canada over minor disagreements. Unless you count political opportunism.

President Donald Trump is a bully. We all know that. And when bullies want to rough somebody up, they don’t pick a fight with an opponent who is as big and strong as they are.

To put it another way: It’s tough being Canada these days.

QuickTake Free Trade and Its Foes

There’s no other way, really, to explain why the Trump administration announced on Tuesday that it was imposing tariffs on exports of Canadian softwood lumber -- tariffs that will cost the Canadian lumber industry $1 billion annually. The Canadian dairy industry is also in Trump’s crosshairs, as he made plain in a threatening tweet Tuesday morning:

Trump spent much of his campaign railing about China’s “unfair” trade practices, and all the “American jobs” that have migrated to Mexico. But now that he’s president, he’s apparently been made to understand that slapping tariffs on Chinese goods could lead to a catastrophic trade war. And any moves that might destabilize Mexico would have negative consequences for the U.S. Ah, but hit Canada with a tariff, and you get all of the political upside of looking tough with no downside.

This is not just because Canadians are nice. It’s because the Canadian economy is more U.S.-dependent than any other. “Twenty percent of Canada’s GDP relies on the U.S.,” said Laura Dawson, the director of the Canada Institute at the Wilson Center. “And 70 percent of Canada’s exports go to the U.S.” Even if Canada wanted to retaliate, what exactly could it do? Stop the Ford plants in Canada from shipping cars to Ford in Detroit?

A rational administration would never let these minor disputes get in the way of a smooth-functioning economic relationship with Canada. To start with, there’s the fact that Canada is the staunchest U.S. ally, which you would think would count for something. And as Bloomberg’s Josh Wingrove pointed out on Tuesday, the U.S. benefits enormously from trade with Canada, which buys 18 percent of all American exports, more than any other country. Last year, Canada’s trade surplus with the U.S. was a minuscule $11.2 billion. The integration of the two economies has been beneficial to both.

Nor are the two disputes anything new. The American lumber industry has been complaining about Canadian softwood lumber since pretty much forever. “George Washington used to complain about British lumber coming in from Canada,” Dawson said with a chuckle. 

The basic allegation is that most timberland in Canada is owned by its provinces, which sell logging rights at below-market prices. The U.S. views this as a government subsidy, a notion Canada rejects. (See this terrific explainer by my Bloomberg View colleague Megan McArdle for the gory details.) Although Americans and the Canadians have never been able to put this dispute to rest, they have been able to negotiate a truce on three separate occasions since the early 1980s.

The most recent truce expired at an awkward time, three months before President Barack Obama was set to leave the White House. Thus, Trump took office with the U.S. lumber industry in high dudgeon. Lacking a special trade representative — Trump’s nominee, Robert Lighthizer, has yet to be confirmed — it appears that Wilbur Ross, the billionaire Commerce Secretary, took a few stabs at negotiating another agreement before concluding that softwood lumber was the perfect vehicle to show that the president was going to be tough on “unfair” trade.

As for dairy, there isn’t much doubt that Canada has erected significant trade barriers for certain kinds of milk products. But get this: U.S. dairy exports to Canada are five times higher than Canadian exports to the U.S. Yes, it would be better if such trade barriers didn’t exist, but making a mountain out of this particular molehill seems both petty and greedy.

In announcing the tariffs on Tuesday, Ross called Canada a “generally a good neighbor” in a tone that suggested a stern parent instructing a child. He also said that if the North American Free Trade Agreement "were operating properly we wouldn’t be having these kinds of disputes.”

Ross has it exactly backwards: the two disputes show how well Nafta operates. All the trade between the U.S. and Canada that is part of Nafta operates under rules both sides understand and abide by. There are virtually no issues. But softwood lumber and dairy were so contentious in the early 1990s, when Nafta was being negotiated, that the two countries concluded that they had to be left out of the agreement.

It’s unlikely that softwood lumber and dairy will be the end of Trump’s bullying of Canada. If the president begins to impose “Buy America” restrictions, Canada will lose business and jobs. American companies have plenty of factories in Canada; it’s not hard to envision Trump aiming his fire at them.

Any such moves, however, will hurt Americans as well, in the form of higher prices and job losses, since there are plenty of U.S. jobs that depend on Canadian imports and Canadian factories. Still, as others have noted, Trump is now using the same kind of language to describe Canada (“they’ve outsmarted our politicians for many years”) that he used to describe China during the campaign.

Since Trump came into office, the government of Prime Minister Justin Trudeau has, as Bloomberg’s Wingrove put it, “played nice with Donald Trump.” Trudeau has “bit his tongue, flooded Washington with envoys, feted Ivanka Trump on Broadway and relentlessly talked up Canada-U.S. ties.” Even after the imposition of the tariffs, he went out of his way to stress that the U.S. and Canada would be able to work out their disagreements.

Let’s hope he’s right. “The real danger here,” Dawson told me, “is that these small but toxic issues will damage a really healthy trade relationship between the two countries.” Bullies don’t stop until victims start fighting back. Sadly, Trump is likely to show Canada that it can’t afford to be so nice.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Joe Nocera at jnocera3@bloomberg.net

    To contact the editor responsible for this story:
    Jonathan Landman at jlandman4@bloomberg.net

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