Domestic Tariff Plan is Covid Redux
Post 73 | We need an entirely different approach
This will hit your inbox the same day we hear what US tariffs 1.0 hit Canada.
They are purportedly because of our lax border security, though only a meager 1.5% of US illegal immigrant flow originated from Canada in 2024.
Or is it because 0.2% of the US’s fentanyl crosses from Canada (43 pounds compared to 21,000 from Mexico in 2024)?
Or is it because we don’t spend 2% on global defense - or is that now 5% per King Donald’s latest musing?
But wait - what about that US trade deficit? We are now told to expect a two-phase tariff punch with V 2.0 likely in April to separately address Canada’s reputedly awful trade surplus with the US. But here are some numbers…
The US imported $40.6 billion more from Canada in 2023 than they exported. This imbalance was smaller than nine other countries. For 2024 it sits at $45 billion, ranking in ninth place and a mere 13% of the US-China imbalance. Then if we exclude from the equation all the oil and gas imported by the US, Canada lands in the hole for all other goods. Finally, for a bit of perspective on the relative size of these trading numbers - the US carries a $36 trillion debt (where $7.9 trillion originated during Trump’s first administration) and the trade deficit with Canada represents 0.125% of that.
US-Canada Trade Deficit 2023
US-Canada Trade Deficit - Q1-Q3 2024
Yet we endure these blustery charges that we’re flooding the US with drugs and immigrants (while nary a word about the 90% of illegal guns that make their way into our country from the US, or the thousands of illegals who’ve penetrated our border). And we hear the bonkers claim that the US subsidizes Canada to the tune of $250 billion annually. The basis of that fake news number is a Trumpian mystery, while incorrectly conflating subsidies with deficits, and entirely ignoring other Canadian investments to the US. From an article in The Hub and echoed by many economists, our trade surplus “is more than offset by roughly $400 billion in annual financial outflows to the U.S. in 2023, resulting in a net balance of payments deficit for Canada...”
As the saying goes, however, “a lie is halfway round the world before the truth gets its boots on”, and Trump can sling the hyperbole.
We’re trying too hard to find reasonability in what he’s doing and it’s just not there. Let’s not pretend it isn’t grossly off base to use tariffs as a club in demanding unrelated behaviours from an economic and political ally, nor that they aren’t ridiculously disproportional to the amped and false claims being made.
The idea of punitive tariffs to extract non-economic behaviours is likely to become a doctrine of this White House, particularly if Trump’s key economic advisor Stephen Miran has any say based on his, “User’s Guide to Restructuring the Global Trading System” which lays out the path.
Despite it all, we need to deal with it and the response should not be more concessions but return tariffs, but I’ll leave that big topic aside for today.
For clarity, I have long been banging the table to turn back our immigration and drug policies and a proponent of increasing our military spending and capability. But little we do in these areas will matter to Trump who simply wants to extract his pound of flesh and will find any reason to do it. Just wait for more beefs to come - maybe some bus loads of immigrants queued up to send back to Canada….or else. Dealing with him is like playing a game of Whac-A-Mole.
Most worrisome is he’s using Canada as an object lesson to the world, particularly China with whom they have large problems, and he doesn’t care if he burns Canada to the ground in doing it. As noted in Post 71, he’s hoping for that as he covets our vast resources.
Unfortunately, we’ll be dangling from this guy’s string until we strengthen and diversify our economy, to reduce dependency on the US market. My blood pressure rises thinking of the wasted years under this destructive Liberal government when we could have been building a powerful economy - but we can still get this done, Canada. It will require bold action and a new administration to lead it.
I’ll get to that.
But first - that isn’t even the biggest news of the week.
No, what gave me double take whiplash was talk from our own government, who now work behind an even thicker veil of secrecy as their proroguing holds the country hostage while reconstituting the rotting carcass of their party and clinging desperately to power.
You see, this very same group who steered us drunkenly through the past decade is reported to have a plan on how to handle domestic blowback from tariffs - a crisis which, while not directly of their making, has been enabled by and made monumentally worse by their ten year dereliction of duty.
They are already planning a Covid-type response – to borrow tens of billions more dollars to dole out in god-knows-what amounts, to whom and under what rules - and for untold duration. Just yesterday, Trudeau trotted out his favourite line that Canadians should be assured that government, “have their backs” - making me want to slam my head repeatedly in a door. Every Canadian who gives a wit about our country’s fiscal health should be alarmed.
We have been told now for weeks that hundreds of thousands of job losses and crashing GDP are about to beset us, conjuring images of bread lines and great deprivation. It’s all based on some nifty computer projections – generating dark scenarios that government is delighted to leverage into fear and uncertainty.
I’m already having a nasty case of Covid Deja vu.
But it’s not just our federal government revving this to high pitch. The provinces are ginning it up for all it’s worth.
In Ontario, Doug Ford called an election declaring he needs a fresh mandate to fight Trump’s tariffs – a euphemism for spending taxpayer money. This is bolstered by scary talk of 500,000 job losses in Ontario – where this unverifiable number is being flung about as immutably true, with none questioning its validity despite few reliable values on which to base it. And for weeks already Ford has been pre-talking up the need for billions in federal government handouts – while sending out $2.5 billion worth of $200 bribery taxpayer rebate cheques in a province with $407 billion of debt costing $11.4 billion annually to service.
Meanwhile, David Eby in BC is restyling himself as the great defender of that province’s economic interests, with a recent Maclean’s article trumpeting “David Eby is Ready for a Trade War”. This, after steering BC straight into the rocky shoals of progressivism for two years while weakening their economy. Yet, like Ford, his main weapon in this war seems to be giving away government money – mostly federal. Job losses are predicted in that province at 100,000 – though from where that number comes is also a mystery.
I’m sure all provinces have generously modeled out the theoretical destruction about to hit them, determined a nice fat number of job losses to float about, and predetermined how much money they want to extract from the federal government.
Economist Jack Mintz just wrote another solid Financial Post article in which he points out, “countries have lived with tariffs for decades without falling into deep recessions”. And for context he noted Canada’s average tariff on our agricultural products globally in 2022 was 14%. But the fear mongering machine is already in high gear, so who wants to hear measured perspective when we have another juicy crisis to leverage?
And so the cycle continues.
Fear-Money-Dependency-Votes. Repeat.
However this latest crisis plays out, our country has adopted a warped view that it is government’s job to protect us against all business failure and personal penury. And they are now telling us they’ll do so even when hardship is merely foreshadowed!
We are now to be economically and perpetually immunized by government. Not only is this economic madness - but it builds no resilience in our country, businesses or citizens. It forces no innovation to deal with obstacles. It allows for no hardship to harden us. It demands of us little sacrifice. It props up weakness and destroys the fundamentals needed to build a strong economy and people – including that of enduring and overcoming.
This is all set against the political backdrop of having a malfunctioning government, running our country from behind a curtain, ready to emerge with an unelected leader in March who will immediately assume the Prime Minister role, in a vulgar twist allowed by our system of government. We will be run for at least some period by the very same group who drove us into economic, social and international disarray as they chased fairy tales of net zero, DEI, gender equity and reconciliation - while ignoring every fundamental of their elected duty. There will simply be a new net zero ideologue at the top. He’ll be smarter than the last guy but even more illegitimate, having been placed there by only a few thousand Liberal party members, including a bunch of 14 year old’s.
77% of Canadians want an immediate election to determine who will lead us, with what vision and what policies. It is so long overdue, I’m tired of saying it.
Coming back to Canada’s domestic tariff plan - the Liberal’s knee jerk response to flood more government money into business and individual pockets is epically wrongheaded and lies at the heart of what plagues us.
Remember the terms “moral hazard” and “Too Big to Fail” from the 2008 credit crisis as it pertained to US banks? Well, if we follow the same Covid playbook in Canada of synthetically propping up everyone, the moral hazard of our downfall will be Too Frail to Fail.
Here’s what we need to do, instead
I have zero faith in the Liberal government to do this, so am banking on a Conservative majority to take up office and give us a shot at success.
We first need a change in tone that highlights and supports business innovation, market diversification and building of durable assets – not more government dependency.
Once we know what we’re dealing with regarding tariffs, a few weeks in, policies can then be laid out.
Short term, let’s say we agree to inject $30 or $40 billion into Canada in 2025. Fine. Frankly, we’ve been throwing a lot more than that into big sinkholes the past few years. But this time, allocate it to enduring things that build infrastructure, small businesses, market access and domestic productivity - not hand out envelopes stuffed with cash that drive inflation, juice housing, and put pressure on supply chains, while disincentivizing innovation.
Instead…
Focus on small businesses through tax policy encouraging investment in capital, people and intellectual property. Do this without regard to their industry, as it’s not government’s job to pick the industry winners and losers. And double down on helping them diversify into international markets by cutting red tape and de-regulating as covered last week.
Break down every possible interprovincial trade barrier and create a massive Canada-wide trading platform without our own damaging tariffs, duplication, fees and paperwork in the way. The potential upsides are staggering - up to $200 billion worth, or $5100/person per a CFIB report last year.
Take a cue from Paul Martin’s 2003 government that changed capital depreciation rules so companies could more quickly write down investments in their companies and accelerate growth and productivity. Look for policies in a similar vein.
Expedite a military infrastructure project in our far north – partly as a signal of our intent to protect that critical border and as one of many ways to bolster our sovereignty, while simultaneously increasing our defense spending.
Do everything necessary, and more - to rejuvenate the Northern Gateway Pipeline (cancelled in 2016) and Energy East Pipeline (cancelled in 2017) projects, including repealing the Impact Assessment Act. And start again celebrating rather than punishing our fossil fuels industry in tone and policy. I think we’re getting close to breaking the net zero fever but not there yet.
Fast track a few infrastructure projects, preferably in Alberta and Saskatchewan.
Break ground on a major mining project in the Ring of Fire in Ontario. Quit talking, negotiating and dithering - do something.
Lure non-American foreign investment to jointly invest in at least one of these projects to show the world our willingness to financially collaborate, even if we take a hit on the first one.
Allow some businesses to fail. It sounds harsh, but allowing the weakest to fall away while enabling the stronger to thrive is no different than the need for occasional wildfires or nature’s other regular cycles.
On current trajectory, we may face as much danger from our domestic policy response to tariffs than whatever itch bothers Trump next week.
But we have many more domestic tools at our disposal than pumping money out to everyone, and so much capacity to yet be leveraged. And they’re all things we should be doing anyway.
Stay tuned and stay pragmatic.
I generally agree with your opinions and suggestions but have a few points of disagreement.
First, we have a major problem with transnational crime and money laundering in this country, it is heavily tied to fentanyl production and export and we need to fix it. Check out Stephen Punwasi at Better Dwelling or Sam Cooper at The Bureau, or on YouTube this week with Ed D’Agostino at Global Macro Update. The numbers you quote represent how much fentanyl has been caught at the border, not how much has got through.
Second, while the number of illegals crossing from Canada to the US is far less than those crossing in from Mexico, they represented 80% of the suspected terrorists apprehended by the US Border Patrol last year. Finally, you correctly note we do not spend (anywhere) near 2% on global defence; I will add that we have no near term plan to get anywhere close to that number let alone the new target of 5%.
Your suggestions as to what to do to make Canada a functional country are spot on, and as you state, we just need an election. To me, the most important question right now is how the hell to we get one.
The current situation is about as close to living in an authoritarian state as you can get in a parliamentary democracy. Canadians worry endlessly about President Trumps tendencies in this regard while sleepwalking through the real and present crisis we are experiencing. It is enough to make one suicidal. This quote from Plato sums things up nicely “If you do not take an interest in the affairs of your government, then you are doomed to live under the rule of fools.” Exactly.
An excellent article that reflects what I hope will become the consensus over the next week or so. But watch out my fellow Canadians. There are two parties in the country who will revel in the pain of our collective experience and who will go out of their way to do the things to stymie the Pragmatic Canadian's utterly sensible suggestions.
First, are our our First Nations people. This is only my opinion. For far too long, too many of these communities have refused to embrace economic development, the very kind of development that will be needed to quickly develop pipelines and the Ring of Fire. Under the Trudeau gov't we have engaged in ten years of reparations, and we have gain zero political capital from it. First Nations will balk at whatever resource plan we come up with and most importantly, they'll be backed up by the Liberal stacked courts. They will demand even more reparations knowing full well a suffering Canadian economy hurts them just as much (or more!) than it does the rest of the country. I hope I'll be proven wrong, but I doubt it.
Second, the environmentalists. These people are beyond unhinged and evidence shows their views are 97% fantasy. Yet, Canadians treat these people like some modern day hippies who deserve to be listened to and treated with kid gloves. By and large, they are also backed up by the courts. We need to treat these people like the obstructers and anti-modernists that they are.
In a very short period of time, as a country, we have to become serious again. As serious as we've been, probably since the 1940. This is impossible with the current government we have. By way of his resignation and their popularity in the polls, the Trudeau gov't doesn't have a mandate to govern. We need a new gov't.
And when they get this new government, they need to look the two groups above in the eyes and inform them there is a national imperative for them to get on board with the program, or else.