To avoid tariffs, Canada needs to negotiate with Trump

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Christine Lagarde, former finance minister of France and now head of the European Central Bank, may be the only leader who knows how to manage tariff threats from U.S. president-elect Donald Trump. That’s because she has worked as a successful lawyer around the world and in the United States for years, specializing in trade and business. She gets him and the business culture that he represents.

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Trump threatened Europe with 10 to 20 per cent tariffs during his election campaign, before threatening 25 per cent tariffs on Canada and Mexico. European leaders panicked, headlines blared and responses varied from retaliatory threats to hissy fits and hand-wringing — similar to the reactions in Canada.

In an interview with the Financial Times, Lagarde explained that dealing with Trump is about horse-trading, not exchanging threats. “No, I don’t think it’s a crisis. I think it’s an awakening. It’s a big awakening,” she said.

“We seem to err more on what I would call a chequebook strategy. We could offer to buy certain things from the United States and signal that we are prepared to sit at the table and see how we can work together. I think this is a better scenario than a pure retaliation strategy, which can lead to a tit-for-tat process where no one is really a winner.”

She pointed out that a range of tariffs between 10 and 20 per cent were mentioned, which meant it was the opening gambit to negotiate, not a firm fixed number. The Europeans could agree to boost the amount of liquefied natural gas they buy from the United States, for example. They could also agree to procure more weapons and defence systems from the United States.

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Last month, Trump told Canada and Mexico that he would impose 25 per cent tariffs unless they prevented illegal drugs and migrants from crossing their borders into the United States. Prime Minister Justin Trudeau immediately flew down to Mar-a-Lago to placate Trump and told him that such tariffs would bankrupt Canada, which resulted in Trump’s put-down that if Canada was so dependent, perhaps it should become the 51st state.

Trump’s tariff threat is about fixing Canada’s porous border and lax policing. But it is also the opening gambit in a negotiation intended to lower the trade deficit. The only relevant response is not to complain about it, as Trudeau did, but to immediately offer solutions.

Ottawa said recently it plans to spend around $1 billion on increased border security, which is a small amount and an admission of prior neglect. Mexico threatened to retaliate. A smart country would do what Lagarde recommended: negotiate. As Lagarde said, we should buy American to avoid a trade war with Trump. Taking her advice, there are three things that Canada should do.

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First, Canada should spend billions to meet its neglected two per cent NATO spending obligation and agree to procure all weapons, systems and services from American or Canadian businesses.

Second, we should shore up our Arctic defences by increasing the strength of the Canadian Armed Forces in the region and procuring the equipment and the facilities that are needed to do the job properly.

Finally, Canada and the provinces should scrap their protectionist regulations and restrictions that impede American imports. The most glaring is our costly supply management system, which also prevents Canadians from buying cheaper products.

Governments must also turn Canada into a free trade zone by eliminating all inter-provincial restrictions and harmonizing regulations across the country. Ironically, the elimination of Canada’s trade-killing practices would help Americans, but would mostly benefit Canadians.

In return, the U.S. must agree to eliminate its “Buy America” procurement laws and any other protectionist measures that keep Canadian businesses out of the U.S. market.

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Instead of launching sensible negotiations, our prime minister pranced down to Mar-a-Lago and whined about his hardship. This is not what leadership, business or trade is about. Worse, other Canadian politicians threatened to cut exports to American customers — threats that are suicidal and will have negative long-term consequences.

Governing a nation-state, or a corporation, is about horse-trading. It’s about reaching win-win decisions through negotiations between leaders who understand how business, trade and economies work. It’s not a game for amateurs like Trudeau.

Financial Post

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