Why Canada is Family, Not Foe

Photo by Haskell Free Library & Opera House

Canada - in many ways, America’s younger brother who, despite getting a later start in life and remaining closer to the parents we rebelled so hard against, turned into a cooler, more progressive and not to mention nicer version of ourselves, without all the hangups of being everyone’s go-to guy when something is wrong in the world. We’re so similar in terms of culture, values, and economies, that free and open trade among the countries has been a huge success for both sides since 1987 when the catchy named Canada-United States trade agreement was signed. In fact, Canada is one of the few countries with which the U.S. actually has a trade surplus; a not inconsiderable $8.7 billion last year. On a more granular level, our two countries are so intertwined that almost 310,000 jobs in the state of Ohio alone depend on Canada, with that one state exporting $18.7 billion in goods to the Great White North every year. Across the nation, nearly 9,000,000 jobs depend on Canada, the country which buys more from America than it does from China, Japan and the United Kingdom combined. Guy Lawson has a fantastic read in the New York Times this week if you want to read more about our long and beneficial relationship with Canada, but the point I’m trying to make for this story is that things are going pretty well.

So why then, would it be beneficial to impose tariffs on Canadian steel and aluminum? The truth is, it’s not beneficial, and Canada has responded with their own tariffs on Kentucky bourbon and Wisconsin pickled cucumbers, specifically targeting the states of the Senate Majority Leader and House Speaker. The problem is NAFTA and Canada are merely caught in the crossfire of a looming trade war along our southern border despite being, well, on the opposite side. While the U.S. and Canada are very much alike, with the latter having even higher labor and environmental regulations than we do, neither country is much like Mexico, so wrapping them into a free trade agreement made little to no sense. Nevertheless it happened, and NAFTA does need an overhaul to square up some longstanding issues that have bred considerable resentment on our side of the fence. And Canada understands this, which is why they’re trying, always politely, to help renegotiate in a way that doesn’t result in the termination of the good thing we have going on with them.

But then there’s this whole threat of a 25% tariff on foreign-made cars. The once-booming Canadian auto industry has been declining recently but they still export a whopping 85% of the vehicles they make, with most of them coming to the United States. Since everyone with a brain knows that increased costs due to tariffs are passed along to consumers, most analysts see the market reacting to the tariffs in three ways:

1. People will not buy new cars, and instead look for used cars.
2. People will look for cheaper new cars or buy ones made in the U.S. (which, by the way, will still be more expensive thanks to the steel and aluminum tariffs already in place.)
3. Or, people will put off buying a car altogether, accepting that the tariffs are temporary and people will come to their senses eventually, which gives politicians an awful lot of credit.

In any case, under the best projections, LMC automotive is predicting sales drop by 1,000,000 vehicles within the first year, but it’ll probably be closer to 2,000,000, or more than 10% of the market. If consumers react by buying used or locally-made vehicles, it could potentially kill off production of vehicles in Canada completely, leading to hundreds of thousands of job losses in a country that actually pays us almost $9 billion every year for the privilege of trading with us freely.

And more than the monetary threat to a country that poses us no monetary threat, to do so under the guise of national security - to suggest that Canada may be nefariously plotting to destabilize our country by sending us their Ford Edges, Chevy Equinoxes and Cadillac XTSs - isn’t just flimsy logic, it’s downright offensive. Canada is the closest thing we have to a best friend in the world at a time when we’re romping around the playground putting gum in everyone’s hair and stomping on others’ toes. Christ, they fought with us in Afghanistan for 13 years after 9/11. When we need someone to have our backs, it’s Canada. The least we can do is not stab them in theirs and claim it’s their own fault.

Authored by
Devlin Riggs

Trade War Update

Donald Trump this week celebrated a small victory in a preamble battle to the Trade War he wants to start and insists will be easy to win. China announced that they will cut import tariffs for cars from 25% to just 15% starting on January 1. Car parts will be cut from 10% to 6%, which will help lower the cost to build new cars in the country as well. In exchange, the United States has lifted a ban on products from Chinese telecom company ZTE Corporation, which had apparently crippled the company. Set to benefit most from the relaxed tariffs are Volkswagen and luxury car makers like BMW and Mercedes-Benz, who don’t produce cars in China. Tesla also benefits, as do some premium Japanese brands, which will now be able to compete cost-wise on a more level playing field with vehicles produced in China.

This doesn’t particularly help Ford or GM, who have already established extensive production in China specifically to avoid high tariffs, and with the 15% tariff still in place, there isn’t much likelihood brands will magically decide to start producing cars in the States again and ship them over. There’s also some rich irony that the Germans seem to benefit most from the actions of the U.S. President.

Photo by Dilworth Police Department

And while China cuts their import tariffs, Trump heard only the phrase “import tariff” and decided “yeah, that’s a great idea, let’s look into that” and assigned the U.S. Secretary of Commerce some homework. Specifically, Trump wants him to initiate a Section 232 investigation into the import of automobiles, trucks and auto parts to determine their effects on America’s national security. And right now you’re thinking “oh, this is supremely stupid,” but remember, it has happened twice that Ford Fusions from a plant in Mexico were caught in the U.S. loaded down with a bunch of weed that some drug mules north of the border failed to offload, so it’s entirely possible that cars are the single greatest source of drug trafficking in the United States. Or maybe it could be that pot should be legalized and regulated and we wouldn’t have people smuggling it in and that two examples of some incompetent drug cartel don’t exactly signify a trend. In any case, the Commerce Secretary will decide.

But Trump’s call for the investigation itself has been met with widespread condemnation from, well, kind of everyone. It’s being regarded as a waste of time and resources that could end up not only harming our relationship with other countries, but harming American consumers through generating higher prices for goods, much like the tariffs on steel and aluminum have done. Moreover, most consider it a stretch to think that an import tariff has anything to do with national security, with Canadian Prime Minister Justin Trudeau going so far as to say it rests on “even flimsier logical grounds.” Automotive News has a great roundup of all the quotes lambasting the move but the best and most concise probably comes from John Bozzella, CEO of the Association of Global Automakers, who said “The U.S. auto industry is thriving and growing. To our knowledge, no one is asking for this protection. This path leads inevitably to fewer choices and higher prices for cars and trucks in America.” So who’s going to win this Trade War again?

Authored by
Devlin Riggs