A signing ceremony for the United States-Mexico-Canada Agreement in Buenos Aires, Argentina on Nov. 30, 2018.Sean Kilpatrick/The Canadian Press
Philippe Couillard served as premier of Quebec between 2014 and 2018. He is now a senior adviser with StrategyCorp, a consulting firm providing services across Canada. Jeff Mahon is director of geopolitical and international business advisory at StrategyCorp.
Trump’s tariff threats have provoked an existential crisis along with a cacophony of reactions from coast-to-coast on how best to deal with it. Aside from Alberta Premier Danielle Smith (and now Saskatchewan Premier Scott Moe), the assumption that retaliatory action is required is going unchallenged among politicians. This consensus view draws from the successes of Canada’s approach last time around – but the problem is that the approach that worked the last time likely won’t work today.
It’s natural – yet alone prudent – to go with what worked in the past when encountering similar circumstances in the present. This experience-informed “if/then” approach prevails throughout the biological world and even advises the algorithms of artificial intelligence. But success is contingent on correctly identifying how present circumstances map to those of the past – and Trump 2.0 has some important differences from Trump 1.0.
It took some time for Canada to get its act together during the first Trump administration, but the Council of the Federation – composed of the premiers of all 13 provinces and territories – helped spur a whole-of-country approach to secure Canadian interests. The federal and provincial governments co-ordinated the delivery of targeted messages during the USMCA negotiations and retaliatory tariffs were strategically applied to hit key constituencies when Mr. Trump tariffed Canadian steel and aluminum exports.
One of us was directly involved in implementing this strategy. Since the Canadian federation represents diverse interests, Philippe Couillard’s focus as premier of Quebec was on delivering messages that would resonate with senior U.S. federal and state officials as it related to Quebec interests – without ever losing sight of the larger national interest. This approach worked because the issues at play were squarely in the realm of trade policy. Through this collective effort, a broad swath of critical U.S. stakeholders understood the economic risks that came with American tariffs and ripping up NAFTA.
The last critical element of this strategy was that Canada didn’t go it alone when dealing with the U.S. We had a crucial ally in Mexico, who came to our aid when Mr. Trump was ready to move on a bilateral deal without Canada.
While there remain lessons to be learned from this experience, differences abound between the situations then and now. Mr. Trump is no longer a political neophyte constrained by the traditional political-economy of federal-state relations and the Republican Party establishment. The Trumpian political movement has established new parameters – and Canada must understand this new mathematics to calculate an effective response.
Start with federal-state relations. There are more than 30 U.S. states where Canada is the main export destination. Canada buys more American exports than what the U.S. exports to Denmark, France, Germany, Italy, Spain and the U.K. combined. Given these facts, most governors understand the importance of Canada. However, with Mr. Trump’s complete takeover of the Republican Party, there is also no red state governor who is going to risk the wrath of the emperor by standing up to him on an issue on which his position is clear.
The polarization of the American polity combined with the mandate Mr. Trump believes he has means he won’t give two-hoots about the cries coming from blue states. Indeed, he may even see economic harm as beneficial, particularly if it hurts the popularity of Democratic governors.
The result is that power has decisively shifted to the national level. Had this been the case during the last go around, Team Canada would’ve been able to orient its strategy around deep long-standing connections with Republican stalwarts. But the Grand Ol’ Party just isn’t what it used it be. Mr. Trump mounted a complete takeover and is firmly in control of the policy reins. He’s also shuffled in a new cohort of billionaires to work amongst the MAGA policy thinkers.
The new palace dynamics will reflect the jockeying for influence between hard-line nationalists and the ultra-rich. Where these internal fault lines lie are anyone’s guess at the moment. As such, this will be a much tougher crowd to reach and convince if Canada deploys the old playbook.
This time around, Canadian leaders have also been quick to publicly throw Mexico under the bus. This plays into Mr. Trump’s favour and weakens Canada’s hand. While our respective trade relations with the U.S. have important differences, both Canada and Mexico are staring down a neighbourhood bully and there is strength in numbers.
Our leaders have mistakenly demonstrated to Mexico that we’re not a reliable partner. The damage is done, and we must operate under the assumption that, unlike last time, Mexico will not be around to back us up again.
The final critical difference is lack of clarity on the nature of the dispute. Mr. Trump’s America First Trade Policy Executive Order is instructive for organizing our muddled thinking. There are three broad streams of priorities:
- A commitment to “addressing unfair and unbalanced trade.” This is a basket of traditional trade irritants, which includes the USMCA review scheduled for 2026;
- Continuing a major theme of Trump 1.0, addressing concerns over the “economic and trade relationship with China;” and
- “Additional economic security matters,” which is a miscellaneous drawer of issues that don’t fit neatly into the other two baskets. It’s here we find Mr. Trump’s concerns over the flow of illegal migration and fentanyl.
The Team Canada approach during Trump 1.0, which included threatening tariffs and making the case with stakeholders, worked so well because we were dealing with traditional issues during relatively traditional times. Today’s 25-per-cent tariff threat is economic coercion, which means it’s coming from a wholly different set of policy concerns and circumstances.
In this context, we must consider an alternative way of conceptualizing the issue. As Mr. Trump’s 25-per-cent tariff threat is not related to traditional trade irritants, responding with retaliatory trade actions misses the point that this is not the type of trade war Canadians are accustomed to.
While it may feel satisfying to rattle the sabre by threatening tariffs, Canada is not going to win a trade war with the U.S. There is a fundamental mismatch on economic reliance that gets lost when all the statistics are thrown around by politicians. Ontario Premier Doug Ford’s call to respond with dollar-for-dollar tariffs misses the fact that Canada would need to introduce across-the-board tariffs that are much higher than 25-per-cent to make that happen. Given that Canada’s economy is more tied to trade, the double whammy of lost exports and higher import costs would ultimately hurt Canada more than the U.S.
Mr. Trump is transactional and he has laid down the terms of the negotiation: stop illegal migration and curtail Canada’s role in illicit fentanyl supply chains. It’s understandable that his approach has invoked confusion. Mr. Trump sees tariffs as a public policy Swiss Army knife: a multi-purpose tool that works not only for dealing with trade disputes but also revenue generation, public-health crises, combatting drugs, ending wars and overall international relations. It uses the threat of tariffs to not only correct real or perceived trade imbalances but – maybe even more – to obtain alignment from a “vassal state.”
Mr. Trump further muddies the waters by introducing policy decrees by social media post – a format that is not known for providing detail.
Canada needs to meet Mr. Trump on his terms. He’s made clear that Canada’s border plan is insufficient. Similar to the aluminum and steel tariffs of his last mandate, Mr. Trump sees Canada as a weak link or back door being used by others. Our leaders and officials need to piece together the puzzle and determine where Mr. Trump’s desire for policy alignment serves our overall interests. His recent designation of cartels as terrorist organizations may offer some clues for dealing with fentanyl.
The U.S. has long-standing bipartisan concerns over what it sees as lax anti-money-laundering rules here. A Trump-team policy thinker, David Asher (who has been credited with drafting the plan to use market access threats to deal with fentanyl), has called Canada out on how illicit financial networks in this country feed into the fentanyl crisis. Dealing with this is in Canada’s interest, and not just as a means to avoid tariffs.
Our country is being roiled by a crisis, catalyzed by forces emanating from the U.S., but made worse by our inability to find composure and think strategically. We need to narrow our focus for this particular predicament and target the issue at hand. There will undoubtedly be more crises over the next four years, especially since Mr. Trump looks to overturn the global trade system. Therefore, we need to keep our powder dry and use the right tools at the right moment. Unlike last time, retaliatory tariffs are not the right tools for this moment in history.