At the recent G7 leadership summit in Quebec, President Trump grabbed headlines when he openly proclaimed that the United States “lost $817 billion dollars on trade”, specifically focusing on American deficit in steel production, and threatened to “stop trading” with some countries in retaliation for this perceived financial loss. Taking aim at a number of nations, he had especially harsh words for Canada, personally stating Trudeau as “weak” and complaining about Canadian protectionist policies regarding dairy products, stating that such threats were a matter of “national security.”
While Trump’s figures are numerically correct, his singular and narrow outlook is simply flawed and unsubstantiated by the hard facts. While miners, farmers and other primary industry workers are nevertheless an important aspect of any national economy, Trump’s clear prioritization of such industries and explicit materialist view of trade belie a highly simplified and “popularist” perception of his presidential power and the American economy. Neglecting to highlight or even consider the US’s considerable lead in other industries such as in various information services, scientific innovation, as well as financial and commercial institutions, his rhetoric belies a dangerously underdeveloped and narrow-minded view of America.
Despite Trump’s simple and somewhat farcical minded outlook on global trade, the mere comments stemming from his genuine and stubborn belief in these incorrect presumptions have very real implications on global affairs. Similar to an earthquake, Trump’s mere remarks and comments already send reverberations throughout the global economy. Considering fears of an impending trade war, many industries and the Dow Jones Industrial Average, barring the key exception of American aluminium and steel industries, manifested their concern in falling stock prices. Aside from financial downturns, Trump’s comments deteriorate long-standing relationships of reciprocal and substantiated trust between the US and other nations. With comments from Canadian PM Trudeau stating that Trump’s tariffs as “insulting and unacceptable”, and German Chancellor Merkel lamenting that Trump’s actions were “sobering” and “depressing”, it clearly demonstrates the increasing estrangement of the longstanding US-backed community in the North Atlantic. As Trump’s clearly foster an increasing transatlantic estrangement of his European and North American allies in his strangely literal isolationist push, Trump’s brash actions, no matter which way you see them, serve to destabilize both the literal goals and projections for long-term American interests.
As seen in the potential of the development Trans-Pacific Partnership and its eventual abandonment in 2016, Trump’s distaste of the past economic agreement largely mirrors the potential complications with his current economic sabre-rattling. The rejection of the TPP was taken largely as a “huge step backwards”, since it would have bound a number of Asian countries more tightly to the United States and expanded American economic clout in the region, especially in the reality of rising Chinese economic clout. While the breakdown TPP cannot be currently equated to the concrete and pre-established relationship in the North Atlantic, the economic rifts caused by Trump, especially amplified with the lack of courtesy and reciprocal respect stemming from his firebrand rhetoric, hack away at the diplomatic trust and confidence that form the base of such a community. While a total isolation of Europe and Canada from American markets are not likely to occur, the lack of confidence in Trump’s support for such relationships will likely cause such foreign nations to diversify their economic holdings away from the US, thus depriving the strength of some economic connections that held together the strategic fabric laid over the North Atlantic.
Narrowing down to North America, Trump’s comments and actions will inevitably cause heavy and negative rippling effects within Canada. As Canada is America’s second largest trading partner, this pre-existing trading relationship is a key pillar for the strength and amicability of the Canadian-American relationship, especially considering the major volume of trade flowing between the nations, the interconnectedness between state and provincial economies and ease of transnational commerce between the two nations under NAFTA. Considering Trump’s explicit displeasure with NAFTA and its free-trade agreement (arranged between the US, Canada and Mexico), the implications of Trump’s ever-increasing tirade on trade deficits will inevitably have a profoundly negative effect on both Canadian economic and political relations with the US.
Although Trump’s actions are more than likely to cause an economic downturn in Canada, the institution of tariffs and their negative effects would likely reverberate right back into the American economy. Similar to the age-old adage that “you don’t bite the hand that feeds you”, American protectionism against Canada (which would likely coincide with Mexico) would only serve to destabilize various industries and corporations that operate on the cordial relations between the three nations under NAFTA. Considering TTrump’sdirect threats to Canada’s auto industry, an American tariff on foreign auto parts made in Mexico and Canada would largely impede the growth of the American auto industry, since US manufacturers would be ill-prepared to handle the full manufacture of vehicles within domestic operations.[2]
Furthermore, Trump’s actions would force Canada’s hand, as it would be in their interest to start diversifying away from the US. In a changing world where the balance of the global economy is rapidly changing, American power stems not from its domestic economic might, but rather as the main anchor for economic partnerships and relationships that cement its position as a global economic power. Consequently, as Trump shirks at such leadership, and reverts to his brand of nationalistic “neo-protectionism”, Canada must seek to diversify its trade so as to account from such a change. While the degradation of trade with the US would be a hard hit on the Canadian economy, Canada’s flexibility and cordial relations with other economies would come to provide plentiful albeit less efficient alternatives to fill the potential gap. While the specific economics of such a shift are likely to point towards difficult times, the fact that Canada has alternative partners provides potential temporary remedies to such an outcome.
In conclusion, while Trump’s general offensive against all other trading partners is not an economically sound idea, it plays into his underhanded political wit. Simply put, while such threats will inevitably pigeonhole the US into a largely isolationist stance devoid of trusting allies, the contemporary economic clout of the US provides Trump with a whole new hand of cards to play at the negotiating table. With negotiations over trade agreements such as NAFTA still ongoing, Trump’s comments highlight a new extreme to which his administration is willing to go to fulfill its goals. While this applies to Trump’s threats of greater tariffs and an implicit potential for a trade war, time will only tell whether they are a partial bluff.
By Timothy Law