Canada is learning a painful lesson, courtesy of United States president-elect Donald Trump, about the importance of trade diversification.
Mr. Trump, who will be sworn in on Monday, is threatening to slap Canada with 25-per-cent tariffs on its exports as soon as his first day in office.
That imminent risk to the Canadian economy should have prompted decisive leadership from the federal government, a united front from premiers and introspection about why our country still lacks global ambition on trade.
Instead, Canadians witnessed posturing from a lame-duck Prime Minister, provincial squabbling and trial-balloon retaliation tactics against our largest trading partner that largely rang hollow. (Florida orange juice, really?)
It’s time to admit that we did this to ourselves. Our lack of intuition, imagination and international gravitas as a country are what caused this predicament.
We haven’t been paying attention. American protectionism didn’t begin with Mr. Trump – or even with the Republican Party. There have been signs for almost 20 years that the U.S. is prepared to stick it to Canada on trade no matter who is in the White House.
Controversies over “country of origin” food labelling and “Buy American” were caused by the administration of former Democratic president Barack Obama. What’s more, bilateral trade irritants didn’t disappear after Mr. Trump’s first presidency. Democratic President Joe Biden has proven that he, too, has a penchant for protectionism (ahem, the Inflation Reduction Act).
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Successive Canadian governments, led by both Liberal and Conservative prime ministers, were warned about the risk of overreliance on the United States as a trading partner for decades but still failed to take adequate action.
Ottawa’s recent fumbling of trade talks with at least two countries, Britain and India, also doesn’t bode well for our prospects to diversify trade in the future.
Canadian businesses, meanwhile, have trouble seeing past the U.S. as a customer for their goods and services. Not only are business leaders too easily seduced by the geographic proximity of the U.S. market, but they’re still uncomfortable finding new customers abroad.
Although Canada has 15 trade agreements in place that cover some 51 countries, our businesses have been too slow to capitalize on the market access afforded by those trade deals.
For instance, the utilization of preferential tariffs under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership differ greatly depending on the Indo-Pacific country, according to a 2023 report. Although Canada’s exports to Japan reached a utilization rate of 88.1 per cent in 2020, the corresponding numbers were 0.2 per cent for Mexico, 36 per cent for Australia, 3.9 per cent for New Zealand and 0 per cent for Singapore, the report said.
The utilization rate for the Canada-European Union Comprehensive Economic and Trade Agreement was 65.4 per cent in 2021 for Canadian exports to the European Union, suggesting plenty of room for improvement.
Will another Trump presidency finally force our legislators and business leaders to think beyond the U.S. border? Fingers crossed.
“We need to put our focus on markets like India, as an example, as a balance to the continued strength we’re going to see from the U.S. and China,” said Murad Al-Katib, president and chief executive officer of Regina-based AGT Food and Ingredients Inc., at The Globe and Mail’s Inauguration and Beyond event.
“It’s not about replacing the U.S. market. It’s about recognizing that our growth is going to come in decades forward, meaning that we need new markets.”
As Mr. Al-Katib rightly points out, Canada only has leverage in a trade dispute with the U.S., or any country for that matter, if it has other markets for its exports. “Because it’s not credible when you have no other market, right?”
Some Canadian products already benefit from that kind of optionality.
“I can tell you right now, McDonald’s fryers won’t have canola oil if they restrict canola exports from Canada,” Mr. Al-Katib said. “Canada can sell that canola abroad as we can durum wheat to Italy and Turkey for pasta instead of to the United States.”
Former prime minister Stephen Harper has separately suggested that now might be the time for Canada to consider selling its oil and gas to other countries – another sensible idea.
India, which is home to the world’s largest oil refinery owned by Reliance Industries Ltd., would be an obvious buyer of Canadian energy products. The Jamnagar Refinery, located in western India, receives supertanker shipments from countries as far away as the United States, Mexico and Venezuela.
Why not Canada?
The current crisis with the U.S. is underscoring the need for Canada to rethink its overall approach to trade.
Ottawa needs to restart stalled trade talks with key allies and ensure the necessary infrastructure is in place to tap new markets. It must also provide more support to businesses, especially small- and medium-sized companies, so they can make better use of existing trade deals.
Provinces must end their turf wars and dismantle interprovincial trade barriers, which are a source of irritation for our foreign trading partners, too.
The Americans have repeatedly demonstrated that Canada cannot count on special consideration when it comes to trade. We need to believe them.