What if Trump is right on trade?

Canadians have feared Donald Trump when it comes to trade. They’ve fumed at his policies. They’ve said his threats and tariffs will bring chaos and disorder. But might they actually agree with him?

It’s easy to make the case that the second Trump presidency will be bad for Canada. Trump has threatened a 10 per cent tariff on everything imported into the U.S. That could shave off as much as five per cent from Canada’s GDP. Uncertainty will weigh on confidence and business investment.

For years Trump has said free trade has been a disaster for American workers; a sentiment shared by many in his inner circle.

In his book No Trade is Free, Trump’s former trade representative Robert Lighthizer says what was once a nearly unanimous Washington consensus on free trade is now dead.

While corporate profits soared for a select group of importers and retailers, many of America’s manufacturing companies were hollowed out — forced either into bankruptcy or into moving their factories abroad, he wrote in the book, published last summer.

What’s more, Trump’s team says their protectionist policies will actually fuel growth. They point to what happened in his first term as evidence of that.

Trump spent years threatening to cancel NAFTA. But in the end, the rewritten deal (now called the Canada-United States-Mexico Agreement) has been heralded as an example of how deals can be made to benefit all parties.

Since the new agreement came into effect, trade between Canada, the U.S. and Mexico has flourished, wrote a TD Economics team in a research paper after last week’s election.

TD says trade is up more than 30 per cent, or more than $1.5 trillion, since the deal was negotiated.

Trump, from an American point of view, has been proven right, said trade lawyer Mark Warner, a principal at MAAW Law in Toronto.

Warner says most Americans never supported free trade and that Trump was able to break a consensus among Republican politicians and drag the party closer to public opinion.

When Trump came along as president he said ‘Nope, we’re not going to be the old Republican party — we’re going to go after China on trade we’re going to go after all our trading partners. We’re going to drive a higher bargain. We’re going to look at all these deals and say what the hell is that,’ said Warner.

He says Republicans aren’t alone in moving away from free trade. U.S. president Joe Biden, a Democrat, kept many of Trump’s tariffs in place. Canada has embraced tariffs to keep out Chinese EVs.

Ottawa also slapped tariffs on Chinese steel products that are an almost exact match of the American tariff regime. And just days before the U.S. election, Canada implemented new country of melt requirements that help the government see where steel is actually coming from.

That will catch the eye of many in Trump’s circle. Canada gets a lot of attention because of the sheer volume of trade between the two countries. But the real target of Trump’s protectionist approach is China.

In his book, Lighthizer spends a chapter chronicling his grievances with Canada.

Although outwardly supportive of free trade and internationalist in orientation, Canada is in reality a quite parochial and at times quite protectionist country, he wrote.

Specifically, Lighthizer points to Canada’s dairy market as an irritant.

For years Canada has operated a dairy supply chain management program that would make a Soviet commissar blush.

But he spends multiple chapters on China and what he sees as the lunacy of entering free trade deals with an adversary. He excoriates China and successive American governments that have made deals even while, he says, China has repeatedly broken trade rules, stolen IP and gained control of global raw materials.

Embedded in that message is an opportunity for Canada.

This country has raw materials and energy the U.S. needs if it wants to do less trade with China.

Trade experts say upending decades of international trade deals comes with no small amount of risk.

Back in 2016, the American economy was growing. Inflation was low and a series of tax cuts had boosted growth and investment. Now, Trump is set to inherit a slowing global economy that’s still dealing with the lingering impact of high prices.

That may amplify the potential damage caused by any new tariffs.

It wasn’t that the Trump tariffs 1.0 weren’t bad, they were just overwhelmed by a bunch of good stuff, said Scott Lincicome, vice-president of general economics at the Cato Institute, a Washington-based think-tank.

During Trump’s first term, Lincicome was working as a trade lawyer. He says he had Canadian clients who held off on U.S. investments because there was too much uncertainty.

He expects this round of uncertainty will be just as pronounced.

Remember just how intertwined the two economies are, he said. To try to decouple these two economies even a little bit is like doing surgery without anesthesia.

He says Trump’s argument that free trade has been bad for most Americans simply isn’t borne out by the facts.

Most of us benefit, he said. And by most I’m not talking 51 per cent. I’m talking 90 per cent, give or take.

Lincicome says the problem is the harms of free trade have been concentrated in electorally important places like swing states in Ohio, Pennsylvania and Michigan.

And that makes the politics of trade far more important than the economics, said Lincicome.

He says he’s clearly losing the political argument right now, but remains confident in economics. And he worries about what damage may be caused before public opinion swings back around.

This article is republished from RCI.