The tide is turning in Canada’s favour as U.S. residents feel the direct brunt of Mr. Trump’s tariffs and erratic economic policies in the form of stubbornly high prices and sluggish job and growth numbers.Dax Melmer/The Canadian Press
Fen Osler Hampson is Chancellor’s Professor at Carleton University and co-chair of the Expert Group on Canada-U.S. Relations.
Tim Sargent is director of economic growth and prosperity at the University of Calgary’s School of Public Policy and former deputy minister of international trade.
Feeling down about Trump’s trade wars and the latest tariff hit against Canada? Don’t be despondent. Though things may get a lot nastier, particularly if we get trapped in a cycle of counterretaliation, Canadians can take some comfort in the fact that trade wars don’t last forever. Moreover, this one promises to end sooner than later. Spoiler alert: Negotiations don’t end tariff wars. But changing domestic political tides and power shifts, as we are about to see in the U.S., do. That is where Canada and Prime Minister Mark Carney have the advantage.
Major trade disputes, ranging from the Austro-Hungarian Romanian customs war and the Franco-Italian trade war in the late 19th century to the Smoot-Hawley Act in the 1930s, to the U.S.-EU steel dispute early in this century show a clear pattern: Mounting economic losses combined with growing domestic and international pressure (and sometimes also a leadership change) force parties back to the negotiating table to resolve their differences.
Among these cases, the rollback of Smoot-Hawley tariffs in 1934 is perhaps the most instructive – not least because Section 338 of that Act is the basis for Mr. Trump’s new 50-per-cent levy on some $28-billion worth of Canadian goods.
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As the Smoot-Hawley tariffs took their bite into personal incomes and national wealth during the Great Depression, domestic political pressure to ease trade restrictions grew. Democratic candidate Franklin D. Roosevelt’s 1932 election campaign included a commitment to lower import taxes to revive commerce. After winning the election, Roosevelt was able to overcome resistance even within his own party to secure Congressional approval granting the president the authority to negotiate reciprocal tariff reductions with the U.S.’s trading partners.
The lesson for the Prime Minister and his negotiating team is clear. Wait for the political tides to turn and, until they do, don’t rush back to the negotiating table. It would be futile anyway because the U.S. will simply restate its unacceptable demands. And until the administration can sort out who is actually in charge of the trade file – Secretary of Commerce Howard Lutnick reportedly intervened at the 11th hour to roll back some of the concessions offered by United States Trade Representative Jamieson Greer – there is little point trying to close a deal.
However, the good news is that the tide is turning in Canada’s favour as U.S. residents feel the direct brunt of Mr. Trump’s tariffs and erratic economic policies in the form of stubbornly high prices and sluggish job and growth numbers. The war in the Gulf, which shows no signs of abating, is adding to the pain by pushing up gasoline prices. Wall Street is getting jittery about the country’s ballooning public debt, falling bond prices and rising yields. Eventually, the Federal Reserve will be forced to raise interest rates – if markets don’t do the job first. And those in the U.S. will feel more economic pain as borrowing costs rise.
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Mr. Trump also has to worry about how U.S. courts, which all the way up to the Supreme Court have not been friendly to his tariffs, will rule on a new challenge by some 25 states to his U.S. Trade Act Section 301 tariffs. Court challenges to his Smoot-Hawley tariffs are also inevitable.
It’s no surprise that Mr. Trump’s job approval numbers are tanking and why Republicans may lose key Congressional races.
Mr. Trump’s obvious desire to show voters a win was evident just before trade talks collapsed when he said talks with Canada would deliver a “good deal for everybody.” And, uncharacteristically, it took him a full day to venture an opinion on social media after they failed. Even he must realize that if he can’t produce a deal with the U.S.’s closest and most trusted neighbour, his most hardened MAGA supporters are going to wonder what’s going on. That Mr. Trump’s normally reticent former vice-president Mike Pence has openly questioned why the administration is picking a trade fight with Canada speaks volumes.
Mr. Trump must also realize that Mr. Carney’s forceful “no” will embolden Mexico, Brazil and other countries to push back on his bullying trade tactics.
It is only a matter of time before the rising political chorus against Mr. Trump reaches a crescendo. That will be the time for Canada to negotiate.