Back in January, Ottawa said it would respond to the threat of devastating U.S. tariffs with a multi-billion dollar pandemic-like support plan for businesses and workers. But the economic relief it unveiled on Friday was not that – which is a good thing.
Invoking pandemic-style aid against U.S. President Donald Trump’s tariff menace is in vogue. NDP leader Jagmeet Singh has left the door open for his party to support such a rescue package. And B.C. premier David Eby and Ontario’s Doug Ford have also floated similar concepts.
It’s a terrible idea. For one, the trade war is a smaller – if still serious – threat than the cataclysm that the economy was facing in the early days of the COVID lockdowns.
The Bank of Canada projects prolonged tariffs of 25 per cent would, over two years, permanently reduce GDP by 2.5 per cent. Higher duties, such as the ones Mr. Trump has slapped on Canadian steel and aluminum, could result in a serious recession.
That would be painful, but far less so than the spring of 2020, when GDP contracted by more than 11 per cent between March and June alone.
But the bigger issue is that the kind of relief that staved off disaster during COVID is precisely the opposite of what Canada needs now.
The purpose of the hundreds of billions of dollars in aid from Ottawa during the pandemic was to freeze the economy in place. Recall the Canada Emergency Wage Subsidy, for example, a massive cash injection that helped employers make payroll, staving off mass layoffs and business closures.
Implementation woes aside, the general concept made perfect sense. The point was to keep corporate balance sheets and workers’ incomes on life support for a short period until the world would go back to business as usual.
In the era of Trump 2.0 there is no business as usual for Canada to go back to. The top priority for Ottawa and the provinces should be to speed up Canada’s transformation into an economy that’s less dependent on our southern neighbour and therefore less vulnerable to the whims of whoever happens to be in the White House.
If the short-term hit from the retreat of the United States into protectionism is manageable, the longer-term stakes are high. The risk is permanently lower growth, as the Bank of Canada has warned. That means lower living standards for current and future generations. To avoid that trajectory, governments need to help both companies and workers to pivot.
Help for business starts with tearing down interprovincial trade barriers, which will open up new markets for domestic companies and fire up competition. It also means speeding up regulatory approvals, lowering taxes on capital investments and building the infrastructure we need to carry goods and energy from coast to coast and to overseas markets.
Raising defence spending, besides being an obvious national security priority, is another way to help: It can create opportunities for domestic suppliers, along with jobs.
For workers facing layoffs and reduced hours, Ottawa should beef up Employment Insurance. To start off, waiving the one-week waiting period to receive support, lowering eligibility thresholds and lengthening the maximum benefit duration are easy but meaningful changes previous governments – both Liberal and Conservative – have deployed in past recessions to various degrees.
The silver lining here is that workers who find themselves on the frontlines of the trade war – those in the auto sector, steel and aluminum plants and the forestry industry – mostly have the kinds of jobs that are covered by EI.
But that safety net largely won’t catch self-employed Canadians, gig workers and many others if high unemployment eventually spreads more broadly. With that in mind, Ottawa must put the pedal to the metal on long-delayed EI reform, a Liberal promise dating back to 2015.
Workers will also need help retraining, either for new skills or entirely new jobs. It was encouraging to see the Liberal government take steps along these lines last week.
Ottawa announced increased access to EI for Canadians who see their hours cut back and billions of dollars worth of new programs to help exporters reach new markets, companies diversify and farmers adjust to the new normal.
There will likely be many more billions of dollars in government spending related to the trade war. Not one of those dollars should go into a repeat of pandemic-style payouts.