New Relations on the Horizon for Canada and the United States

New Relations on the Horizon for Canada and the United States by Maj (ret'd) CORNELIU. CHISU, CD, PMSC, FEC, CET, P. Eng. Former Member of Parliament Pickering-Scarborough East There are just a few weeks left before President elect Donald Trump takes office on the 20th of January 2025. In the meantime, there are preparations for the new presidential administration, and the incoming President is putting new ideas forward in order to strengthen his mandate for making “America Great Again”. He is looking to implement a series of his ideas for strengthening the border both North and South of the United States. He is also looking to eliminate waste in government spending and keeping manufacturing jobs in the country. For instance, he has made a promise to impose a 25% tariffs on goods imported from Mexico and Canada, until these countries make the required efforts to secure their borders with the States to curtail illegal immigration and lower the trade deficit. Not surprisingly, Donald Trump’s declaration that, as one of his first acts upon taking office on January 20th, he will impose a sweeping 25% tariff on all Canadian and Mexican goods entering the United States has sent politicians, policymakers, and business leaders across the continent into a frenzy. The question is how seriously we should take this threat. Secondly, what can Canada do to prevent the North American free trade agreement from becoming a relic of the past? Based on our knowledge of the incoming President, it seems that the threat is very real and should not be taken in an easy and dismissive way. I see commotion in the Canadian Government, which was taken by surprise by the re-election of Donald Trump, and had not taken any steps to cultivate the appropriate relations that would avoid any surprises in bilateral relations. This commotion resulted in a sudden desperate trip of Canadian Prime Minister Justin Trudeau to have dinner with the incoming President and try to resolve the issue. It should be noted however, that based on previous actions the two men are not on the best of terms, personally .Diplomatically, incoming President Trump affirmed that the meeting with Prime Minister Trudeau was productive. However, if we make deductions from what is publicly known about the meeting, as Canadians, we might well be concerned. According to people at the table who heard the discussion, Trump, while cordial and welcoming, was very direct when it came to what he wants from his counterpart to the North. Paraphrasing the discussion, Trump told Trudeau that Canada has failed the U.S. by allowing large amounts of drugs and people across the border, including illegal immigrants from over 70 different countries. Moreover, Trump became more animated when it came to the U.S. trade deficit with Canada, which he estimated to be more than $100 billion. The President-elect told the Prime Minister that if Canada cannot fix the border issues and trade deficit, he would levy a 25% tariff on all Canadian goods on day one when he returns to office. The reaction from Prime Minister Trudeau was that the President should not levy the tariff because it would kill the Canadian economy completely. Trump replied by asking, “so your country can't survive unless it's ripping off the U.S. to the tune of $100 billion?” Trump then suggested to Trudeau that Canada become the 51st state, which caused the Prime Minister and others to laugh nervously. Someone at the table chimed in and advised Trump that Canada would be a very liberal state, which received even more laughter. Trump then suggested that Canada could possibly become two states: a conservative and a liberal one. He told Trudeau that if he cannot handle his list of demands without ripping the United States off in trade, maybe Canada should really become a state or two and Trudeau could become a governor. While sources at the table say the exchange got many laughs, Trump delivered the message that he expected change by January 20. Talking seriously, the impact of a 25% tariff on imported goods from Canada will have a devastating result on the Canadian economy, especially in English Canada. In Ontario, for example, two-way trade makes up 41 percent of the province’s economy, and in Alberta, a major energy supplier to the U.S., it is 42 percent. As a result, a 25% tariff would be highly disruptive, potentially affecting millions of jobs. The threat of a 25% tariffs should not be taken lightly and Canadians need to be prepared for this alternative rather than dismissing it. Our politicians, both governing and in opposition, will need to be prepared for alternatives. We will soon see if they will be capable of doing so. Let me be clear, the incoming Trump administration sees restoring manufacturing production in the United States as a socio-economic imperative. It is at the centre of their vision for being responsive to the voters who elected them and restoring the social equilibrium of deindustrialized America. Through this lens, Trump’s tariffs targeting Canada and Mexico take on a different meaning. He has picked his North American partners first because the supply chains here are the shortest and producers in the two countries will face lower transaction costs for shifting production back into the United States than companies in Europe or elsewhere. The Trump-Vance policy bet is that a 25% tariff to access the U.S. market will represent such a high economic cost that companies will be prepared to absorb the short-term disruption of moving product mandates, production lines, and even entire facilities from Canada and Mexico back to the United States. Considering the disastrous fiscal position the United States finds itself in, a position that has deteriorated markedly not only because of the pandemic but also because of continued government deficit spending at levels normally seen during wartime, new innovative measures need to be taken. At this time, tariffs are considered to be a key part of a larger fiscal agenda for generating hundreds of billions in revenues to fund trillions in tax cuts without pushing up borrowing costs. They are no longer just a bargaining tool. In conclusion, comparing tariff threats in 2025 versus those in 2016, we must understand that the current threats are a fiscal necessity hardwired into Trump’s demand-side theory of stimulating economic growth through large-scale permanent tax expenditures. In view of this and in stark terms, the incoming Trump administration, nervous about a debt-to-GDP ratio of 124 percent, may not have very much choice when it comes to levying large tariffs. If Canadians continue to think that this President, his billionaire donors, and the current GOP are going to forgo tax cuts to forgo tariffs, they suffer from a level of national delusion that even Dracula cannot sort out. Are the politico in Ottawa prepared in their ivory towers? We will soon see