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Trump triggers trade war with Canada, not China

Banglar Bir

Mar 19, 2006
Trump triggers trade war with Canada, not China
Shahid Islam in Toronto

The US President Donald Trump and Bangladesh’s former military dictator HM Ershad have many things in common. Both are over-aged yet romantically debouched, and, both are prone to mercurial changes in stances and temperament. The unpredictability in the leaders of such ilk often triggers trouble in an instant, which others find hard to grasp or cope with. They also often signal to the left to move to the right.
When President Trump and PM Justin Trudeau met in February, they trudged on quite well; Trump touting the bilateral relationship as ‘outstanding’ and displaying even an approving interest in restarting the construction of the Keystone XL pipeline to carry Canadian oil to the USA, which Obama shelved aside. No one thought the relations to plunge so soon, so suddenly, and, Trump to target Canada instead of China which he blamed for ‘unfair trading.’

Looming trade war
Now, Trump’s real face glares in the spotlight as he once again shows his characteristic unpredictability by hitting the USA’s closet neighbour and best friend. “We’re going to be putting a 20 percent tax on softwood lumber coming in—tariff on softwood coming into the United States from Canada,” Trump declared last week. He added:
“People don’t realize Canada’s been very rough on the United States.
Everyone thinks of Canada being wonderful and civil. I love Canada. But they’ve outsmarted our politicians for many years, and you people understand that.” Trump also imposed 20 per cent tax on Canadian dairy products going to the USA.
Experts believe the crisis within the US’s dairy farmers is not correlated with Canada and, are linked with the U.S. and global over-production of dairy products. They say Canada doesn’t provide subsidy to dairy farmers which the US unfairly does to the tune of $4 billion, in violation of WTO rules.
Statistics also reveal the USA runs a $400-million trade surplus with Canada in dairy-products trading, and, in 2015 alone, Canada imported US goods worth about $289-billion, dispelling Trump’s the NAFTA treaty needs re-writing.

Canada to retaliate
Little wonder that Trump’s declaration triggered a trade war between the two powerful economies, jointly producing nearly US$ 20 trillion worth of GDP. Canada said it would retaliate in many ways, and it has reasons to do so. Although the US GDP is almost $18 trillion strong and Canada staggers below $2 trillion—due mainly to lack of population which still remains roughly at 36 million—US-Canada trade dealings have been mostly fair, transparent and mutually beneficial under a free trade regime that had evolved since the 1980s. To Canada, Trump is proving anti-tradition and anti-free trading; the two major hallmarks of US-Canada relations.
Following negotiations that began in 1986, the two neighbours agreed to the Canada-United States Free Trade Agreement (CUSFTA) in 1987, which finally came into being on January 1, 1989, and was later supplanted by the North American Free Trade Agreement (NAFTA) in 1994. Over the decades, the NAFTA had transformed into world’s largest free trade zone and boosted prosperity in Canada, the US, and Mexico.

Mutual dependence
Today, not only the US and Canada are the largest bilateral trading partners in the world, with $544 billion in total two way goods traded during 2016 — the US exporting $266 billion worth to Canada and importing worth $278.1 billion—unlike Bangladesh and India where trade deficit always remain heavily tilted in favour of bigger India – the U.S. trade deficit with Canada was only $12.1 billion in 2016.
Trump is not unaware that the US dependence on Canada is substantive and, any counter-move by Ottawa could hurt the USA badly due to Canada providing for 97% of all U.S. natural gas imports, valued at C$102 billion. Canada also remains the largest foreign supplier of crude oil to the U.S., accounting for 43% of total U.S. crude oil imports and 20% of refinery intake. As well, Canada supplies approximately 30% of the uranium used in U.S. nuclear power plants and spends nearly C$30 billion in energy imports from the USA for areas closer to US borders.
Yet, Donald Trump had launched a frontal attack on Canadian farmers and saw mill workers in an opening salvo to rewrite the NAFTA deal, as he promised before the election. He found Canada as a soft target vis a vis China, whom he accused of unfair trading but decided not to antagonize now due to the Chinese help he so badly needs to put a damper on the North Korean threats to ‘obliterate the USA form the face of the earth with nuclear strikes!.’

Economic impact
In all likelihood, Trump had, like his other decisions, miscalculated the Canadian resolve and the degree of US dependency on its northern neighbour. Geographically, Canada is the second largest country in the world, stretching from the U.S. in the south to the Arctic Circle in the north; sprawled over an area of 9,984,670 sq. km, interspersed by a panoply of diverse geo-climatic regions.
With the stroke of a pen, Trump had put into jeopardy the livelihood of thousands of Canadian dairy farmers, concentrated mostly in Ontario and Quebec, and over 60,000 Canadian forest-products workers of British Columbia who all are faced with a steep 24 per cent duties on Canadian softwood lumber and dairy products export to the USA. The newly imposed duties on Canadian dairy and forest products violate the World Trade Organization (WTO) and the NAFTA treaty obligations, claim experts.
The Canadian government says the U.S. has a 5-1 edge in its favour when it comes to the dairy trade between the two countries; the U.S’s dairy exports to Canada in 2016 amounting to US$631.6 million while Canadian dairy exports to the U.S. totalling only $112.6 million during the same period. Yet, in an April 25 tweet Trump wrote: “Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!”

Trump’s Godsend opportunity
The US farmers maintain that the ultra-filtered milk, a concentrated ingredient used to boost protein content in cheese and yogurt, is the main bone of contention; because Canada is offering incentives for processors to buy from domestic manufacturers, which they say will cost them over $150 million in export loss to Canada in Wisconsin and New York alone.
With respect to Canadian lumber industry, which functions on public-owned land by using fees, the USA objects to this practice too; for in the USA, lumber traders dock their products on private land. The USA says government patronization in Canada constitutes an unfair public subsidy that allows Canadian producers to flood US market with cheaply produced softwood from fir, spruce, pine and other coniferous trees.
In the past, such disputes were settled with help from US builders who find Canadian woods cheaper and handy. The latest agreement on this dispute was signed in 2006 and expired in 2015, offering Trump the opportunity to butt in with his punitive declaration against Canada.

Canadian response
Canada wants to retaliate against Trump’s moves by diverting exports and changing the main thrust of its international trading toward Asia and Europe, a process that had already begun. The British Columbia’s softwood-lumber exports to China have soared by about 2,000 per cent in last few years. Besides, the Comprehensive Economic and Trade Agreement (CETA) signed in October 2016 between Canada and the EU had opened up a new vista for Canadian international trading with the 27 EU nations.
As well, Canada is pursuing closer trade relationships with China and other Asian economies, more aggressively due to Trump’s revocation of the Trans-Pacific Partnership (TPP) agreement that would have opened up Canadian dairy market to American exports.
Canada is also looking forward to more invention and innovation; being the proud inventor of insulin, stem-cell research and smart phone, to name but a few. Trump’s drive to force out foreign skilled workers from the USA is also bringing home to Canada over 250,000 Canadians working in the Silicon Valley, who are reported to kick start a tech-revolution inside Canada on which the USA may have to depend. In totality, denuded of the NAFTA boons, the USA’s fortunes may not blossom as vivaciously as it did in the past.
More importantly, extensive security cooperation as members of NATO, and the US dependence on Canada for secure, reliable and competitive energy supply—including crude oil, refined petroleum products, natural gas, electricity and uranium – will now face new hurdles of a kind that will not bode well for global peace, prosperity and security.


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