Guest Opinion | Reflections on trade, tariffs, and winning

||| FROM DOUGLAS MARSHALL |||

Recent events recalled my high school textbook which taught that countries should balance their imports and exports. I asked the poor teacher “Why?” She became  angry, because she could not explain such a complicated topic.

That episode helped point me to a degree in Economics. Later I worked in the dairy industry, at a time we were increasingly exporting dairy products. We asked the US to pressure Canada to allow more dairy imports. I’m no expert on international trade, but I did learn it is very complex, and very emotional.

I reflected on all that after our President’s February 1st announcement of tariffs on our three largest trading partners: 25% on Canada and Mexico, 10% on China. The stock and cryptocurrency markets quickly signaled serious concerns. Mr. Trump then deferred Canada and Mexico tariffs for 30 days. But not for China, which already has retaliated with a 10% tariff on what we sell them, plus export quotas which limit our access to minerals used in high-tech products.

Targeting Canada was a troubling surprise. Mr. Trump explained to reporters that Canada buys $200 billion more worth of goods than we buy from them, which he characterized as “subsidizing them” – but “we get nothing in return.” Thus “they owe us $200 billion.” And: Canada restricts dairy imports, while we allow them to freely sell dairy products to us. “They treat us very unfairly” and “take advantage of us.”

Really? If I buy more from Island Market than they buy from me, are they are treating me unfairly? Do I get nothing in return? The normally Trump-friendly editorial board of The Wall Street Journal wrote: “Mr. Trump’s justification for this economic assault on the neighbors makes no sense”, calling it “The Dumbest Trade War in History.”

During 2023, Canada imported $482 billion of our merchandise and exported $441 billion to us. The difference: $41 billion, not $200 billion. US imports include roughly $80 billion worth of conveniently located oil and gas, which greatly help our energy picture.

Are trade deficits always bad? Let’s turn the table. US exports to Panama were worth $11 billion more than what they purchased from us. “Sir, how much do we ‘owe’ Panama?” If both countries benefit, is there a problem?

Here are three examples where international trade CAN be problematic: If we are restricting Panama’s sales to us, then they deserve more “reciprocal” open markets to benefit from sales to us. While certain cheap imports can help an importing country, other imports might compete for their jobs, or harm industries which are important to their national security or which produce food needed to feed their people. Our trade
deficits with China have been so big, they have accumulated huge dollar reserves which could be used to harm our economy.

Those kinds of issues shape international trade agreements, which are tediously negotiated, product by product, to reduce (or perhaps accept) tariffs or subsidies, or import quotas. Horse-trading is common, so a country may “win” what it wants in one product sector at the expense of another sector.

The first Trump administration renegotiated our Canada-US-Mexico trade agreement. When signing it into law in 2018, Mr. Trump called it a “win”, “a truly fair and reciprocal trade deal.” Now Trump threatens what they bargained for, when they gave up some things to maintain dairy protections. And new tariffs would blatantly violate that agreement. Canada hears broken promises.

Mr. Trump justifies ignoring his 2018 agreement because fentanyl and immigrants coming over the northern border create an “emergency.” A true emergency would trigger his legal authority to establish tariffs, but Canadians don’t agree it would justify violating trade agreements. Canadians say our own numbers  demonstrate that neither of those problems is significant, suggesting Trump’s bad faith.

Trust, respect, and good faith lubricate negotiations. I once argued that Canadians do not need to pay higher milk prices to protect their dairy industry BECAUSE THEY CAN RELY ON US for cheaper milk products. But now, Canada sees they CAN NOT rely on us.

By belittling their Prime Minister, trying to make them our 51 st state, and then threatening tariffs, Mr. Trump has angered Canadians and unified their Parliament. Canada now is seeking more trade with Japan and the EU, to reduce dependence on the neighbor who now seems unreliable. We also risk losing the other cooperation and support our two countries have historically enjoyed: allies during WW1, WW2, Korea, the Gulf War, and Afghanistan. Today, we share intelligence and jointly track Russian aircraft and submarines.

The China story is different. They are not an ally. Their 2023 exports to us were $280 billion more than what we were able to sell to them – way more serious than our $41 billion trade deficit with Canada. Tariffs might help encourage China to open its market to us. However, they possess dangerously powerful tools for fighting back.

Mr. Trump claims to be all about “winning.” But he may lose “The Dumbest Trade War in History”, and lose US credibility along with it. Stay tuned. He really is able to stop THIS war in 24 hours.