By R. Bruce Striegler

“The Trump Administration is proceeding with unilateral measures to address what it has characterized as “unfair” trade, risking retaliation, but banking on a threat of massive escalation to extract a favourable outcome for itself,” says the C.D. Howe Institute. Released in June, a new report titled “Quantifying the Impacts of the U.S. Section 232 Steel and Aluminum Tariffs”, its authors find that protective trade measures imposed by the United States will reduce U.S. and Canadian GDP, while paradoxically strengthening trade partners outside the North American region through competitive gains.

The national uproar over the American President’s imposition of tariffs on aluminum and steel imports, along with the considerable media coverage of the difficult NAFTA negotiations, has caught the attention of the Canadian public, unlike any other recent action by an allied country. Notable findings from the C.D. Howe report include discovering that the negative impact on GDP, in value terms, is relatively larger in Canada (US$8.1 billion) than in the United States, at $3.0 billion. The report authors conclude that both economies will become less efficient, with labour productivity falling by about 0.05 per cent in the United States and 0.08 per cent in Canada. Further, they discover both economies likely to become less open. American two-way trade is expected to fall in real terms by about 0.7 per cent, or in value terms, by over US$36 billion. Canadian trade is expected to decline less, at about 0.3 per cent for exports, and 0.6 per cent for imports. In value terms, that’s about US$4 billion.

‘Implausible claims’ meet one of the world’s highest corporate tax rates

“Under the Trump administration, U.S. trade policy has been characterized by implausible claims, demands and threats, which are then retracted, reasserted and so on,” the institute notes. Trump’s tactics include “outlandish, unworkable proposals to manipulate trade flows that appear deeply misinformed, threats against U.S. multinationals, proposed negotiations that would break up EU policy solidarity [and] flip-flopping on a policy for China.”

According to Statistics Canada, Canadian companies exported $483-billion worth of goods in 2017, up $30 billion from 2016. Small and medium-sized companies accounted for 54 per cent of the increase, led by energy companies. The number of exporting firms in 2017 grew by 191 to 43,480. Nevertheless, at the end of July, Federal Finance Minister Bill Morneau in an interview with Bloomberg, conceded that Canada has a competitiveness problem and he says he plans to address it in the fall fiscal update. Canada, with a combined average federal-provincial corporate tax rate close to 27 per cent, now has one of the highest rates among 33 OECD countries (the highest is Japan’s, at nearly 31 per cent). If companies with U.S. operations plan to shift costs such as interest expense to other countries, or shift tangible and intangible profits to the United States, Canada is going to end up as one of the biggest victims of base erosion as our corporate tax rate is so high.

Canadian port executives not concerned

While many executives at Canadian port operations were reticent to comment about the potential trade upheaval, Brian Friesen, Director, Trade Development and Communications for the Prince Rupert Port Authority tells us, “We do not anticipate a reduction in volumes as a result of U.S. tariffs on aluminum and steel on Canada. In fact, this trade action may result in an increase in export volume, as Canadian producers look to diversify markets overseas. Given that the Port of Prince Rupert represents a strategic gateway for Canadian trade, we are well positioned to support Canada’s participation in new trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Tony Boemi, Vice-President, Growth and Development Montreal Port Authority says, “We have a view that any policies and positions around trade barriers and so on between the USA and Canada may, if anything, benefit Canadian ports. Companies will need to look for different markets, and logically, those markets are overseas markets which requires marine transport. We have heard of some companies from Asia diverting cargo from U.S .ports to Canadian ports due to the recent trade.” He adds, “With the new free trade agreement between Canada and Europe, I would suspect that any barriers imposed between Canada and the USA may increase at a more rapid pace the level of commercial activity between Canada and Europe.” He notes that U.S. traffic may be affected by potential trade barriers. “But that is primarily rail or truck.”

Economic Development Canada Mid-Year Trade Confidence Index shows gains

The turmoil and threats from the U.S. surrounding the renegotiation of the North American Free Trade Agreement (NAFTA) has further muddied the trade waters in the past year. Nevertheless, according to Export Development Canada, whose Mid-Year Trade Confidence Index was published in mid-July, finds overall trade confidence increased (up three index points, from 73.5 to 76.5), with gains for all firm sizes, sectors, and regions of the country. Better expectations for international and domestic sales drove the improved outlook. EDC reports that more Canadian companies expect their export sales to increase over the next six months. (73 per cent, a major jump from 56 per cent in the previous survey). More businesses say sales to the U.S. increased over the past six months, (46 per cent, up from 36 per cent), and half the survey respondents expect to increase hiring – although they say they face growing challenges in accessing skilled labour.

In the EDC news release, Peter Hall, EDC’s Chief Economist is quoted, saying, “This is consistent with the growth we’re seeing in Canadian exports this year. The business is there, and exporters are not letting politics trump production – at least, for now.” While that may be the case now, the Index also reports that there has been a significant increase in the proportion of Canadian exporters who have started exporting to new countries – up 44 per cent from 31 per cent, and those who plan on doing so, 64 per cent up from 49 per cent. There was also a significant increase in the proportion of Canadian exporters who have investments outside of Canada (17 per cent up from 11 per cent), or those who plan to do so – 22 per cent, which is up from the previous 12 per cent. EDC notes that after the recently-signed (Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP), Canadian exporters are paying more attention to the Asia Pacific.

It’s not all good news, however, as EDC also reports that despite the overall confidence, a growing proportion of exporters say the NAFTA talks have had a negative impact on their Canadian operations – 28 per cent, up from 23 in the previous survey. The highest NAFTA concerns were reported in the transportation sector, for large firms, and those located in Ontario and Western Canada. NAFTA renegotiation is also having a noticeable, negative impact on investment plans for Canadian exporters, which appears to reflect an “investment hesitation” by some firms, as six per cent of companies said they are responding by delaying their investments.

U.S. trade dispute improves Canadians impressions of Asia

Since 2004, the Asia Pacific Foundation of Canada has been conducting regular nationwide surveys to assess Canadians’ attitudes toward countries in the Asia Pacific region, and their perceptions of Canada-Asia relations. Their 2018 National Opinion Poll was a traditional long-form survey which covered a wide range of topics. As the Poll notes in its Executive Summary, “While anti-trade and anti-immigration sentiments are on the rise in many parts of the world, this is not necessarily true in Canada where the public is increasingly supportive of international engagement, particularly when it comes to Asia.” Among the summary points from the national poll of 3,561 Canadian adults on Canada-Asia relations released this June, are the following:

• 43 per cent of Canadians consider Canada as part of the Asia Pacific region, up from 34 per cent in 2016 and 18 per cent in 2013. British Columbians have the strongest Asia Pacific identity, with 56 per cent viewing Canada as part of the Asia Pacific region.

• 27 per cent of Canadians say Canada-China relations are improving, up slightly from 2016. Meanwhile, 24 per cent perceive better Canada-South Korea relations, up from 16 per cent in 2016. For the United States, an overwhelming majority of Canadians (80 per cent) depict a worsening relationship. This number has skyrocketed, from 20 per cent in 2016 and 28 per cent in 2006.

• 71 per cent of Canadians now agree with the statement that “the growing importance of India as an economic power is more of an opportunity than a threat,” up from 50 per cent in 2014, while 60 per cent agree with the same statement about China, up from 41 per cent compared with four years ago. The Atlantic Provinces (69 per cent), Saskatchewan (66 per cent), and Manitoba (66 per cent) are the three regions that believe most strongly that the rise of China is more of an opportunity than a threat to Canada.

Canadians forced to rethink a heavy dependence on U.S. trade

Reports in every Canadian newspaper over the past several months detail stories of the disruption actually happening, or likely to unfold as the dispute over steel and aluminium tariffs and the troubled negotiation with NAFTA continues. In a June article in the Financial Times, a reporter uses a Cape Breton Island company, Louisbourg Seafoods Ltd., as a case study, pointing out that the company generates approximately $65 million in revenue, with most of its fresh fish being exported to the United States. Louisbourg Seafoods has begun to find new potential buyers for its groundfish in markets such as the U.K. and South Korea where it once only sold shellfish products. It has also discovered demand in Asia for products it hadn’t previously sold like sea cucumber and whelk. Although the company produces more than 15 million tonnes of lobster, shrimp, crab and groundfish, a company Vice-President is quoted saying, “There is a whole variety of markets that we’ve never had before here in North America.” Louisbourg has boosted its marketing budget in recent years to around $2.6 million, and the company has gradually been expanding its reach into Vietnam, Singapore, South Korea, the Netherlands, the U.K., Belgium and other markets.

In a July story in the Vancouver Sun, Fiona Famulak, President of the Vancouver Regional Construction Association told a conference audience that British Columbians can expect the cost of building big projects, from bridges to residential skyscrapers, to rise as a result of the tit-for-tat tariff battle between Canada and the United States. Canada’s retaliatory tariffs against U.S. steel, aluminum and a wide range of targeted consumer goods took effect July 1, and only ten days in she noted, construction firms face difficulties in getting suppliers to give them firm prices on tariff-affected materials. And regardless of whether construction projects are public sector or privately owned, “the price of your construction project will go up as a result of tariffs,” Famulak said.

Dairy farmers and processors worry about survival

Quoted in an online financial story, Mathieu Frigon, President and CEO of the Dairy Processors Association of Canada says, “The dairy industry has been a success story in the last three years. We’ve grown our contribution to the Canadian GDP by ten per cent in the span of two years. That’s unheard of. If you look in the last 25 years, there’s been a real taste from Canadian consumers for dairy and dairy products.” He continues, noting, “It’s been exciting times in terms of the growth we’ve seen in the marketplace, but it came with challenges.” Frigon also says, “NAFTA 2.0 is obviously a challenge. Our position is that it should allow for continued growth of the Canadian dairy industry. It would have a positive impact on the sector, not only the processing industry but the entire sector.”

The issue is highlighted further in comments made by to The Canadian Press by Pierre Lampron, President of the Dairy Farmers of Canada. “Canadian dairy farmers and their families are concerned by the sustained attacks by President Trump with an aim to wiping out dairy farmers here at home,” Lampron said, adding that ten per cent of the Canadian dairy market is open to imports without tariffs, compared with just three per cent in the U.S. Nevertheless, both men say that Canadian farmers and processors are likely to be hurt if protections aren’t maintained. Scotiabank suggested its “disingenuous” to use the 270 per cent tariff figure Trump has been flinging around to “besmirch Canada’s overall trade policies.” “Trump is quoting a figure that applies to milk that accounts for a tiny fraction of Canada’s $33 billion of goods imported from the United States each month,” the bank wrote in its analysis. “Better judgment would question whether an entire trading relationship needs to be jeopardized in order to appeal to dairy farmers in Wisconsin,” the statement added.

Others in Canada have argued the system should be abolished in favour of a more free-market model. In a report last year, the Canada West Foundation argued the system has been an obstacle in trade negotiations and that it drives up the price of milk, eggs, and poultry for Canadian consumers. The Canadian government did make concessions in supply management for joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), an 11-nation free trade agreement, opening up 3.25 per cent of the domestic industry for foreign competition. In 2016, the Canadian dairy sector was worth $6.2 billion, while the country produced $4.2 billion in poultry and eggs, according to the federal agriculture department. Canada also imports more dairy products than it sells on the international market, with a $735 million trade deficit for dairy in 2016.

Canadians strongly oppose Trump tariffs; many support retaliation

According to an Abacus Data poll issued in June, fifty-eight per cent of Canadians strongly oppose Mr. Trump’s action against Canada and another 21 per cent oppose the U.S. tariffs. What’s more, Trump has managed to unite Canadians to an extent that few issues do: opposition to the U.S. tariffs is roughly 80 per cent in every part of the country. Conservative voters are 82 per cent against Mr. Trump on this issue, NDP voters 80 per cent and Liberals 87 per cent. Reaction to the counter-measures announced by the Canadian government have garnered a lot of support across the country. Forty-one per cent strongly support the steps taken by the Prime Minister and another 30 per cent support them. Only 19 per cent are opposed.

The level of Canadian frustration with the American President is so high, that many Canadians are inclined to want to do what they can to send a pocketbook message to America. About 15 million Canadians or more say they’ll avoid U.S. wines, cross border shopping and pleasure trips to the United States. Millions say they will avoid products with Made in USA labels, avoid buying U.S. produce, and avoid buying from large American companies such as Wal-Mart, Starbucks and McDonalds. Whether they will actually follow up is quite another matter as emotions fade, and as the practical realization sets in that most fast-food and major retail chains are U.S.-owned or are franchises of U.S.-owned operations, including iconic Tim Horton’s. Much of our food is made in the U.S., or processed by U.S. or U.S.-owned corporations.

A second poll commissioned for CTV News by Nanos Research and issued a month after the Abacus data showed similar numbers.