Summer 2018

What I Lost in the Trade Wars: Reflections of a Disillusioned Canadian

– Laura Dawson

I wonder if decision-makers in Washington, let alone the president, understand how Canadians are interpreting the recent developments, whether they care, and whether they realize what the practical consequences may be.

There have been two constants in my sociopolitical understanding of the world. One has been the embeddedness of the United States within my identity as a Canadian. The other is the belief that liberal internationalism, while imperfect, is the best way to achieve a mostly fair, mostly peaceful world order. Today, both of those ideas are under fire.

When I was growing up in the 1970s and 1980s, Americans and American-ness were part of the daily lives of Canadians in ways that were intrinsic and unquestioned. In our house, we watched the three American TV channels, ABC, CBS, and NBC, and two Canadian ones, CBC and CTV. As the nightly news flickered on the black-and-white TV screen, my five-year-old self did not see the difference between Pierre Trudeau suspending civil rights to quell separatist terrorism in Quebec and the killing of student protestors at Kent State by the National Guard. Expo 67 brought the world to Montreal, and in 1969, Apollo 11 took men to the moon. These are the threads that fed the warp and weft of identity for many Canadians of my generation – an identity that is more North American than strictly Canadian.

Then came September 11, 2001. External threats robbed us of easy trips across the border for work, shopping, a beer, or a ball game but the circumstances then were so dire that Canadians did not question the need for greater vigilance. Even though the attacks occurred on U.S. territory, the shockwaves reverberated across our two nations, and Canadians searched for ways to support our neighbors and our friends during this terrible time. In the aftermath of the attacks, it was a Canadian commander on duty at the North American Aerospace Defense Command (NORAD) who issued the order to close North American airspace. Residents of Gander, Newfoundland sheltered 6,700 Americans stranded on flights from Europe. And, on September 14, Prime Minister Jean Chrétien declared a national day of mourning in honor of the victims. Tens of thousands of Canadians gathered on Parliament Hill. I was one of those Canadians standing on the grass on that hot September day.

A man holds American and Canadian flags at a memorial ceremony in Ottawa, September 14, 2001.
Courtesy of AP

We felt not only sympathy for our American neighbors, but also the chilling recognition that the violent invasions that had spared North America through two world wars had finally come to our territory. Addressing the crowd that day, Chrétien quoted Martin Luther King, who said that in difficult times, it is not the words of your enemies that matter, but the silence of your friends. “There will be no silence from Canada,” the prime minister said “Our friendship has no limit.”

Or does it? Looking back on September 14, 2001, I wonder whether Canadians will ever again feel that same sense of solidarity with the United States. Will our flags ever overlap as proudly and easily as they did then?

Anger Goes Introspective

The economic relationship between the U.S. and Canada is the largest between any two nations in the world. Trade across the border amounted to about $675 billion last year. It is not surprising, then, that trade has been the major battlefield in the “America First”/“Make America Great Again” era.

Yes, any trade relationship of the size and complexity of the Canada-U.S. relationship will hit some bumps. In the pre-MAGA era, we made routine complaints about irritants that we really didn’t expect to change, because we recognized that these occupied areas of political sensitivity in the other country. Canadians complained about the Jones Act’s restrictions on maritime shipping and the 25 percent tariff on light trucks. Americans complained about Canadian cultural policies prohibiting foreign ownership in the broadcast industry and a highly restrictive market for dairy imports.

Irritants that were serious enough to move beyond routine grousing were sent to dispute-settlement mechanisms under NAFTA and the WTO. It is worth recalling that the purpose of these agreements – like many other institutions of the liberal international order – is to provide a rules-based, transparent system that helps to minimize the influence of short-term political interests on long-term market efficiency and collective prosperity.

Yes, Canadians understand that the president’s intention is political optics – but we are offended at a visceral level that our American allies have announced to the world that Canada is not to be trusted.

But in the era of MAGA, routine irritants are no longer dealt with routinely. Attacks lobbed by the White House at Canada and other allies have escalated from accusations of unfair trading to the imposition of punitive tariffs and threats to rip up key trade agreements. The White House dismisses rules-based frameworks for settling disputes as traps for suckers.

What crossed the line for many Canadians, however, was the grounds upon which Trump imposed tariffs on Canadian steel and aluminum this spring: “national security concerns.” Previously, when the tariffs had been threatened but not levied, the president tweeted that they were simply a means to gain leverage at the NAFTA negotiating table. Congress-watchers remind us that by using national security as a justification, the president can impose tariffs much more broadly than he could otherwise, and without lawmakers’ approval. Yes, Canadians understand that the president’s intention is political optics – but we are offended at a visceral level that our American allies have announced to the world that Canada is not to be trusted.

Workers at a steel-pipe factory in Edmonton, June 21, 2018.
Courtesy of Reuters

Imposing national security tariffs on Canada is insupportable in fact. Canada is a long-time co-production partner on military equipment and in 2018, NORAD marked 60 years of binational defense of our shared airspace. The same Canadian steel being targeted by the U.S. president was used to rebuild the World Trade Center. Canadian political scientist David Haglund notes that not only is Canada the longest continuing ally of the U.S., but because we share a common territory, Canada “is also the ally whose own security and defense interests are most tightly enmeshed with America’s and vice versa.”

With a population one-tenth the size of the United States’ and an over- abundance of civility, many Canadians have felt that their country is the junior partner in the relationship – more adaptable, but also more sensitive to slights. Even though Canadians have griped about American bellicosity and heavy-handedness, we have also believed President Kennedy’s famous quote about the natural necessity of our alliance:

Geography has made us neighbors. History has made us friends. Economics has made us partners. And necessity has made us allies. Those whom nature hath so joined together, let no man put asunder. What unites us is far greater than what divides us.

In the U.S., political outrage has become a national sport, but Canadians don’t do outrage very well. Their anger goes introspective. There is now a growing sense that we’ve been duped into investing in a relationship that was never as strong as we thought it was. It is dawning on Canadians that Americans – or at least those in charge – don’t think much of us or think of us much at all. It is as though Canadians look at Americans through one end of a telescope – everything looks close up and large – while Americans look at Canadians through the other end of the lens – small, distant, and unimportant.

I wonder if decision-makers in Washington, let alone the president, understand how Canadians are interpreting the recent developments, whether they care, and whether they realize what the practical consequences may be.

What Are We Fighting Over?

Notwithstanding our generally friendly history, Canadians and Americans have had bitter disagreements in the past. President Johnson once accused Prime Minister Pearson of “pissing on my rug” when the latter was critical of U.S. involvement in Vietnam. Richard Nixon and Pierre Trudeau were frequently at odds over missile defense. But these disputes were about something – a disagreement over principle or policy direction. Since today’s trade wars have no basis in fact, we don’t know what we’re fighting over and we don’t know what to do next.

Tariffs are essentially taxes: the cost of import tariffs imposed must be paid by U.S. importers and consumers, while the cost of retaliatory tariffs is born by American manufacturers and exporters who become less competitive in other markets. The U.S. has a steel trade surplus with Canada, and yes, Canada is the largest exporter of steel to the United States, but it is also the largest importer of U.S. steel because the North American market has organized itself into regional pockets of specialization. Canada produces more flat-rolled steel products and the U.S. produces more pipes, tubes, and other long products. NAFTA made it possible for these products to move easily throughout the continent as if the border didn’t exist. Now, by some estimates, for every American job in steel and aluminum processing that the tariffs protect, another 80 American manufacturing jobs are threatened. In short, both Canadians and Americans are suffering because of tariffs that make no economic sense.

A sizable share of U.S. exports to Canada and Mexico are now, or will soon be, subject to tariffs imposed in retaliation. Add to that a rapidly escalating set of tariffs and countermeasures between China and the U.S. over intellectual property and technology disputes and a substantial part of U.S. trade is at risk. Also, the cost of tariffs is not shared equally across the economy. They will hardly be felt by industries in some sectors, but will wipe out profits in others, such as agriculture.

To be sure, the combination of U.S. tariffs hurts the intended targets as well. Canada and Mexico are not only facing down billions in tariffs in their largest export market, they are also struggling with declines in investment, as enterprises put new spending on ice while waiting for stability to return to the North American market. The Bank of Canada forecasts a drop of least two percent in business investment and a one-percent drop in exports by 2020 as a result of trade uncertainty (and these projections were published before the “national security” round of the trade war began).

Canadian Foreign Minister Chrystia Freeland adjusts her headset during a press conference following the seventh round of NAFTA negotiations in Mexico City, March 5, 2018.
Courtesy of AP

Canadians are also reacting to trade wars and NAFTA gripes by trying, and trying again, to understand the thinking of the highly unorthodox U.S. president. Trump’s The Art of the Deal sets out a formula for making extreme demands and threats in order to extract concessions. David Honig, an expert on negotiations strategy at Indiana University, argues that this kind of bargaining creates bad faith, and therefore only works in one-time interactions: If you renege on your bill with a cabinetmaker working on your casino, you can always find another cabinetmaker for your next casino. However, in a complex and interdependent world, characterized by multiple interactions in multiple spheres, from immigration to continental defense, “There isn’t another Canada,” Honig writes. Our interactions are repeated, and good outcomes rely on trust and shared interests.

America, the Isolated

In trade as well as other areas of international cooperation, such as security and climate, the U.S. pursuit of “America First” is predicated on breaking traditional alliances. Says New York Times Opinion Columnist Bret Stephens:

It’s fair to say that the U.S. could use its leverage to negotiate more advantageous trade deals. It isn’t fair to insist on politically untenable trade concessions he knows other countries won’t make — a sunset clause for Nafta, for example — in order to destroy these agreements permanently while blaming the other side.

What, Stephens asks, what is the upside of a feared and isolated America? Since the Second World War, the U.S. has advanced and perpetuated the ideals of liberal internationalism. Yes, it often paid more than its share or stepped forward when others stepped back – but, in return, the U.S. was able to shape the rules of the global order in line with its interests and priorities. For example, strong intellectual rules that are enforced by the WTO are a direct reflection of America’s interest in protecting its intellectual property around the world. The rules for settling investment disputes that U.S. Trade Representative Robert Lighthizer is so eager to purge from NAFTA are drawn directly from U.S. commercial policy, and the U.S. has never lost an investor-state case brought against it under NAFTA.

Part of the MAGA trade agenda involves replacing multi-party agreements with bilateral ones, because in Art-of-the-Deal negotiating, it is easier to extract advantages from one weaker opponent than from several who could form a coalition against you. However, despite claims to the contrary, countries are not lining up to ink new trade agreements with Washington. Indeed, they are being dissuaded by bullying tactics. Said Japanese Deputy Prime Minister Taro Aso, “When two countries negotiate, the stronger country gets stronger.”

There is no doubt that MAGA is hard on the neighbors, but aggressive protectionism is doing short-term harm to the U.S. economy and appears to be inflicting long-term damage on U.S. credibility. The outspoken European Council president, Donald Tusk, assesses U.S. defection from liberal internationalism in starker terms: “Europe should be grateful [to] President Trump, because thanks to him, we have got rid of old illusions. He has made us realize that if you need a helping hand, you will find one at the end of your arm.”

Similarly, European parliamentarian Christian Ehler, chair of the EU delegation for relations with the United States, says that President Trump “is rather a gravedigger for the post-war order, which the United States itself has founded.”

A Loss beyond Dollars

And what about U.S. credibility with its neighbor to the north? Allies in the United States try to reassure Canadians that things will return to normal eventually. It’s just a president playing to a political base. Even if that were the case, it does not do a thing to negate the consequences and the collateral damage.

In early June, just prior to the blow-up between Trump and Canadian Prime Minister Justin Trudeau at the G7, Foreign Minister Chrystia Freeland spoke about the loosening bonds between the United States and Canada and the erosion of liberal internationalism:

The fact that our friend and ally has come to question the very worth of its mantle of global leadership puts into sharper focus the need for the rest of us to set our own clear and sovereign course. For Canada, that course must be the renewal, indeed the strengthening, of the postwar multilateral order.

That is certainly a laudable goal, but in the midst of a trade war, and with only the nine least contentious NAFTA chapters settled out of 32, it must be cold comfort to Canadian business-owners. Their only option is to hunker down and hope that U.S. supply-chain partners can convince the White House that dismantling agreements that support efficient cross-border production hurts, rather than helps, American workers.

A woman displays a sign as guests arrive at the Ottawa residence of the U.S. ambassador to Canada for a Fourth of July celebration, July 4, 2018.
Courtesy of AP

Canadians are also trying to push back in limited ways. Recent polling says seven out of 10 Canadians plan to stop buying U.S. goods or travelling to the U.S. as a result of President Trump’s trade wars. Canadians have restarted a boycott of Heinz ketchup that initially ignited in 2014 after the manufacturer closed a plant in Ontario, and this year, many Canadian politicians declined their invitation to the U.S. ambassador’s Fourth of July party. Said Ottawa Mayor Jim Watson, “I’ve politely declined because I’m not happy with the direction of the American government and their constant attacks on our country.” These actions are more symbolic than substantive.

The substance, though, is there. A quote widely attributed to Winston Churchill is “Americans can always be trusted to do the right thing, once all other possibilities have been exhausted.” Maybe so. But even if the U.S. reverts to its role as ally and friend, Canada may never again accept the relationship with the same faith as it did in the pre-MAGA era. That’s not only true on the national, policymaking level, but, I wager, on the personal level, for many Canadians. Myself included. That is a loss that goes far beyond the balance sheet.


Laura Dawson (@DawsonCanada) is the director of the Wilson Center’s Canada Institute. Named among the top 100 foreign policy influencers in Canada, she is an expert on international trade and Canada-U.S. relations. Cover photo: Members of the U.S. Air Force Honor Guard march with U.S. and Canadian flags, May 18, 2012. (Courtesy of AP)