PINDER: What happened to the Yanks?

The United States, under both Democratic and Republican Presidents, has unfortunately become an unreliable trade partner. This commentary, the first of three, reviews the politics and history of trade between Canada and the US, and explains the outdated concept of mercantilism.For many decades free trade between our countries served both well. Political reticence for the idea, at times intense, was historically north of the border.According to Wikipedia, even before Confederation, trade was a political issue as free trade, implemented between the colonies of British North America and the United States under the Reciprocity Treaty in 1855, was cancelled by the United States Congress.Also from Wikipedia, “Canada's first Prime Minister, Sir John A Macdonald, attempted and failed to reinstitute reciprocity after which the government of Canada moved to a more protectionist policy.” There were fears of political annexation... 'plus c’est la meme chose.'Free trade was the central issue in the 1911 Canadian federal election when Conservatives defeated the Liberal proponents led by Prime Minister Sir Wilfrid Laurier. Between 1935 and 1980 there were tariff-reducing agreements between the countries, most significantly the Auto Pact in the 1960s. And, importantly, the energy sector adopted a continental approach based on common sense, not borders.For more than five decades, the automobile industry has functioned as a single marketplace enjoying the efficiencies of scale and specialization as parts move back and forth across the border. Ditto the energy sector.With opposing views of some economists, interest groups and political parties, a Conservative proposal of a free trade agreement with US was the defining issue of the 1984 federal election. A courageous Prime Minister Mulroney, seeking re-election, defeated the traditional pro free trade Liberals, resulting in a comprehensive Free Trade Agreement (FTA) between our countries, signed in 1988.Still from Wikipedia, “Already on the rise, trade accelerated” as exports as a component of Canada's GDP increased from 25% to almost 50% by the end of the century. This is not surprising as free trade is nothing more than a logical cross-border extension of Adam Smith’s 1776 free market thesis —freedom of choice results in more prosperity — the “magic of the marketplace.” A lucid metaphor, economist Walter Block recently wrote in the Financial Post “tariffs reduce the number of win-win, voluntary, commercial interactions….like a tourniquet on a healthy part of the body.”The growing impact of trade was enhanced in 1992 when the FTA evolved into NAFTA, the North American Free Trade Agreement which included Mexico. In his first administration President Trump demanded a renegotiation of NAFTA which again evolved, becoming USCMA.Signed in 2020, there is a review clause in 2026. Now the President of the United States is unilaterally proposing to breach the agreement he insisted upon, threatening tariffs and more, a year and a half prior to the review date stipulated in his agreement.This is disappointing treatment from our neighbour and friend throughout our history. Unnecessary and based on the outdated theory of international trade — mercantilism — Trump wants to take the US back more than a century.Mercantilism relies on a large role by the state to generate wealth by the accumulation of positive trade balances, mostly by way of tariffs and the development and protection of national corporate champions. Mercantilism was primarily exercised centuries ago by the British Empire and other European colonial powers. Currencies were backed by gold, often found in the colonies. It was believed that that inter-country trade and prosperity were a zero sum game — what Great Britain gained, the colonies lost — (which was not always untrue at the time.)Displaying his age and spouting centuries-old economic theory, someone should remind President Trump about the Boston Tea Party, a rebellion against the mercantilism of Great Britain, eventually resulting in the formation of the United States of America.The recent series about trade in the Western Standard supports the benefits of extending open markets and free choice beyond national boundaries, and the folly of tariffs. .PINDER: Sustained growth likely in 2025 but not so much in mature economies.But in today's world economic theory is nuanced, especially when a major trading partner is China. A vile dictatorship which broke its undertakings with respect to Hong Kong, now aggressively taking steps to capture Taiwan, even by military action, is now an enemy. China is also well known for its subterfuge and meddling an internal political and economic matters in western democracies and beyond. So, it may be appropriate for tariffs on China to be part of a strategic retaliation, notwithstanding economic damage.From a political perspective, President Biden maintained Trump’s tariffs, and in 2024 increasing them on Chinese semiconductors, renewable technologies, steel, and other components of electric vehicles. Although it appears there is bipartisan support for standing up to China, economically and otherwise, a Quinnipiac University poll in mid-December, revealed that only 38% support the proposed tariffs.The reality is that trade must be balanced “with other considerations such as US alliances, global supply change dynamics, and inflation concerns”, according to a November 2024 report by Geopolitical Futures.One hopes tariffs announced by Trump conducting his usual negotiating bluster, will ultimately be “balanced” and only to satisfy strategic imperatives. The deficit he bemoans is on the Canadian side if one excludes energy.It seems strange that Trump’s spectacular win includes a policy that is contrary to his many sensible policies, instead of beating up friends, neighbors, and allies. This is hardly Making American Great Again but rather sullying long established mutual respect and commercial collaboration, and global leadership, another important aspect of MAGA.

PINDER: What happened to the Yanks?

Related Stories