With the U.S. imposition of tariffs on Canadian newsprint coming on top of threatened tariffs on steel and lack of resolution of the softwood lumber dispute, some in Canada are starting to wonder if we are in a trade war with the U.S.
The answer is no.
Our trade spats with the U.S. are far from ideal, and depending on the particular business, potentially devastating, but when we look beyond our own misery we see the real trade war unfolding: between the U.S. and China.
This week, Trump took the first steps to imposing tariffs on $60 billion in Chinese goods. Less widely reported is that Trump also proposes increased visa and travel restrictions and outright bans on Chinese investment in the U.S. This is all part of a larger push to cut the U.S. trade deficit with China by $100 billion US. China hit back on Friday, with retaliatory tariffs of only $2 billion and a promise to take the U.S. to the World Trade Organization (WTO); it is likely that China will follow up with more measures, and this spat will escalate, tit-for-tat, into an all-out trade war.
Imagine if the U.S. moved to impose tariffs on Canadian energy, agricultural and manufactured good exports, kill the NEXUS program and stymie further investment by big banks BMO, RBC and TD in the US. For Canada, the tariff hit combined with other trade restricting measures would be a catastrophic blow. It’s not just the tariffs; it’s the whole package, or perhaps better phrased, the whole payload that the U.S. is dropping.
The U.S. move is reported to be designed to counter Chinese intellectual property theft. And let’s be clear: if this was a TV crime procedural and China were hauled in front of a judge with intellectual property theft as the charge, it would not be released on its own recognizance. Others, including the EU, Japan and Canada, share this concern and would be urging the court to throw the book at China. And to be fair, in its own defense China can call witnesses, starting with Lego, to testify how things are improving. But strikingly, outside the U.S., especially among U.S. industry, the calls for retaliation on intellectual property theft haven’t been overwhelming and certainly nowhere near as loud as complaints about China dumping steel.
Worse, the Americans are also reported to be considering reviving voluntary export reductions as a trade policy tool. In essence, if a country agrees to unilaterally reduce its exports, the U.S. would not impose tariffs. The flip side of this is, of course, if a country does not reduce exports, the U.S. would impose tariffs. The use of voluntary export reductions was, explicitly, killed with the creation of the WTO. And while the WTO has not been perfect (and has outright failed on occasion), it has still largely brought order and rules to global trade. It has also taken the “hold a gun to your partner’s head to get results” style of trade “diplomacy” off the table. Or so we thought until Donald Trump came along.
China is, of course, not taking this lying down. The state-run newspaper Global Times said that if a trade war breaks out “…, appeasement is not an option. ” And, “China has to brace for trade wars both in strategy and mentality. Beijing needs to give Washington head-on blows in a similar manner and must not be soft.”
On Thursday, China’s ambassador to the U.S. said “Let me assure those people who intend to fight a trade war. We will certainly fight back. We will retaliate…If people want to play tough, we will play tough with them and see who will last longer.” China has the ability to mobilize its population – the largest in the world – and have them boycott American products. This happened last year in South Korea, to devastating effect.
The bigger picture for Canada
So, as much grief as Canada is getting from the U.S. on the trade front, we really need to lift our gaze and concern ourselves with the larger picture. This is not just about the U.S. going after China, it’s about how the U.S. is doing it – basically sacrificing the larger rules of the game that protect us all, including Canada. There are also real concerns about Canada getting burned in a China-U.S. trade war.
A note here to allow that it’s odd to have to come to the defense of China, a country that could use some reigning in, to say the least. But this is the Donald Trump era in which we live and the unimaginable scenario has now become necessary.
It’s also about the newly signed Asia-Pacific trade deal, the Comprehensive and Progressive Agreement for Trans-Pacific Trade (CPTPP). A trade war with China is another page in the Trump administration’s playbook to roll back the rules of trade as win-win undertakings. His attempt to kill the colossal multilateral TPP (as it was then known) deal, was one front in this battle to strong arm trade talks into one-on-ones with the U.S. For Canada, and the remaining 10 signatory countries, going ahead with the CPTPP without the U.S. was a significant way to push back and 1) stand up for open, liberalized trade and 2) obtain one set of rules for 10 markets, something the U.S. cannot duplicate with bilateral deals.
What about the WTO
The question is whether a trade war with China may be the U.S. administration’s first shot at taking down the WTO. And that’s something that should send shivers through any country that believes in liberalized trade.
If the U.S. indeed has the WTO in its sights, and I can see no reason why it does not, then we need to think about how we respond. A difficult question and one with no easy answer and certainly no answer in this piece.
Canada joined others in going ahead with the CPTPP as part of a regional effort across the Pacific to push back against Trump administration. This time it’s a tougher call given that China does not exactly have clean hands and that Canada has its own trade irritants and aspirations with Beijing. Pushing back on the dangerous unilateral U.S. actions here will be harder. But it may be necessary. Trump failed in his effort to kill the TPP and may also fail in his effort to kill NAFTA. But if he is successful, it is the perfect setup for him to bluff on pulling out of the WTO and putting the global trade order on edge. The crucial point here for Canada is that without the WTO, we would have nothing to insulate ourselves and manage this U.S. administration.
So, with a trade war between the U.S. and China coming and a potential larger threat to the WTO on the horizon, what do we do now?
– Carlo Dade is the director of the Trade & Investment Centre