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A tariffs and trading partner question
I recently received this message:
Why not.
First of all, we must look at President Trump’s track record, positive and negative.
President Trump doesn’t hesitate to break the rules. Although the United States is a founding member of the World Trade Organization (WTO), President Trump daily breaks the most important rule of the WTO, that member countries cannot just impose tariffs whenever they want. This is the primary purpose of the WTO. He does it every day.
It appears to me that President Trump is like an elephant because he never forgets. Once he starts on a mission, it never ends. Right now, he is re-visiting the investigation and charges against many people who were his opposition in his first term as President eight years ago. He never forgets, and he never gives up.
President Trump views politics in terms of deals, loyalty, and negotiation, rather than ideology or tradition. He has totally changed the way countries deal with each other. Long-standing diplomatic traditions have gone out the window. The layers of diplomacy that once allowed countries to negotiate sensitive issues have now been replaced by overnight tweet announcements.
President Trump is a risk taker, but uniquely, he is not bothered when his risks fail. He just changes the narrative with alternative facts and charges on. He never acknowledges a loss or defeat. Somehow, he makes everything a win for himself.
He is very unpredictable, and he uses that unpredictability to keep his adversaries off balance. For as long as he is President of the United States, Canada will not have a deal that we can be confident will last. Whether it is a handshake deal, a verbal agreement, or a signed, sealed, and delivered written contract, it might change the next day.
He is impulsive and unpredictable, but once he establishes a goal, he sticks to it. I had always thought that his first comment, that Canada should be the 51st state of the United States, was made in jest. But once that notion was in his noggin, it never left. He is still saying it, and now he means it. He is very concerned about his place in history, and arranging (forcing) a successful fusion of Canada and the United States would be the ultimate accomplishment to be remembered on his epitaph.
Many of the U.S. tariffs are targeted directly at Canada. Just in the last few days, he increased tariffs on softwood lumber and heavy-duty trucks. Canada is THE major foreign supplier of softwood lumber and heavy-duty trucks. I suspect that these tariffs are intended to pressure Canada and increase the chances of a merger with the United States.
However, many people, including President Trump, have been surprised by the quiet but effective opposition Canadians have shown in response to his comments and actions. Tourists have cancelled their usual trips to the U.S.A. Provinces have pulled U.S. liquors from their stores. Consumers are checking more carefully where groceries and other goods come from. All levels of government are reviewing their purchasing sources. Canadians are selling their U.S. second homes. Canadians are flying the Canadian flag more than ever.
These Canadian efforts are starting to be felt. There is even some pushback to the tariffs in the U.S. lately. It is mostly from the U.S. northern states, but not exclusively. It is starting to register in the White House as well, and it may influence the Canadian negotiators as they try to reach a deal on tariffs. However, as I said, I do not believe that Canada can be confident of achieving a durable deal with the U.S. as long as President Trump is in office.
President Trump used to say that Canada has nothing that we want. He doesn t say that anymore. I think they would like to have Canadian tourists back. I think they would like to have their F-35 fighter jet deal back. I think they would like to have U.S. liquor back on Canadian shelves. And so on.
Now, there are a few issues where I agree with President Trump.
First of all, I never could understand why the U.S. southern border was left so open, allowing millions of illegal immigrants from Central and South America to enter the country with so little effort to ensure that they entered through proper established programs.
Another one is the flood of drugs into the United States. Many have talked about stopping the flow of deadly drugs, but little has been done. Now Mr. Trump is seriously curtailing drugs crossing their border. Recently he has implemented a policy of using the U.S. military to find and sink high speed drug boats. This is against U.S. law, the U. N. Charter, and Human Rights and Maritime Laws, but I bet it is working. In Mr. Trump's world, it needed to be done and he is making it happen. The end justifies the means.
I think that President Trump does have a tariff issue with Mexico, but not with Canada. For example, I bought a Bayliner boat two years ago. To my surprise, it was made in Mexico. The top was made in Mexico. The depth sounder was made in Mexico. The wiring was made in Mexico. The steering was made in Mexico. Parts of the MerCruiser drive were made in Mexico.
Bayliner Boats are owned by the Brunswick Corporation, which also owns SeaRay, Boston Whaler, and Trophy Boats. At one time, they were all made in the United States, but now they all have many models and parts made in one huge factory in Reynosa, Mexico.
When I searched labour rates for assembly line workers, the rates in Mexico averaged $4.65 an hour. Assembly line labour rates in the U.S.A. average $22.00. According to these numbers, U.S. skilled assembly labour rates are almost 500% higher than those in Mexico. Hence, the move by labour-intensive factories out of the U.S.A. to Mexico.
On one hand, this cost advantage has allowed Mexico to raise their standard of living and health. On the other hand, it has cost the USA a lot of jobs. Perhaps there could have been a better formula when CUSMA was negotiated.
In the meantime, many companies in Canada are contemplating moving to the U.S.A. because of the U.S. tariffs. A PricewaterhouseCoopers study indicated that 19% of Canadian manufacturers plan to move all or part of their production to the U.S.A. A KPMG study revealed that 48% of Canadian companies are preparing to shift production or investment south of the border. These are big numbers. The worst part is that once they have moved, they won t be moving back, even after President Trump leaves office.
Fortunately, Canada has more trees, more water, more hydro, more wind, more minerals, more oil, more coastline, more fish, more agricultural land, more manufacturing expertise, more high-tech companies, more ocean research, more universities, the most stable banking system, a respected international image, and a more stable government than almost any country on the planet.
Now it is up to Canada s leaders to find new markets for these products and ensure that Canada finally achieves its full potential. There will be controversial issues, but if we want to maintain our quality of life, we need to find compromises that allow us to harvest our resources and maximize our talents while still protecting our environment and meeting our obligations to Indigenous peoples.
It is easy to see that Prime Minister Carney has a two-pronged trade approach underway. He is trying to work with the U.S. while still aggressively reaching out to new markets in Europe and Asia. Certainly, we can no longer depend on the U.S.A. to be the traditional good customer they have always been.
I am sure that there will be turbulence along the way, but hopefully we will end up on solid ground with a much wider range of customers for our great Canadian products and services.
This will take time, but the initiatives have already started. Even in Amherst, a local entrepreneur just returned from Sweden where he made contacts that will help him manufacture innovative products here using Swedish technology and using all Canadian materials. The Canadian International Trade Offices in Stockholm and Halifax helped make the arrangements. Hopefully, we will see many of those new connections made.
If you or your company wants to make some international business connections, I might be able to help. Feel free to contact me at 902 397 1305.
Thank you for the question, Ed. I hope that the answer wasn't too long.
Thanks for reading
Bill
Hi, Bill. Do you suppose you could share on your blog your thoughts on U.S. tariffs, the economy, the path forward, and maybe the possibilities and time frame of different new trading partners?
Why not.
First of all, we must look at President Trump’s track record, positive and negative.
President Trump doesn’t hesitate to break the rules. Although the United States is a founding member of the World Trade Organization (WTO), President Trump daily breaks the most important rule of the WTO, that member countries cannot just impose tariffs whenever they want. This is the primary purpose of the WTO. He does it every day.
It appears to me that President Trump is like an elephant because he never forgets. Once he starts on a mission, it never ends. Right now, he is re-visiting the investigation and charges against many people who were his opposition in his first term as President eight years ago. He never forgets, and he never gives up.
President Trump views politics in terms of deals, loyalty, and negotiation, rather than ideology or tradition. He has totally changed the way countries deal with each other. Long-standing diplomatic traditions have gone out the window. The layers of diplomacy that once allowed countries to negotiate sensitive issues have now been replaced by overnight tweet announcements.
President Trump is a risk taker, but uniquely, he is not bothered when his risks fail. He just changes the narrative with alternative facts and charges on. He never acknowledges a loss or defeat. Somehow, he makes everything a win for himself.
He is very unpredictable, and he uses that unpredictability to keep his adversaries off balance. For as long as he is President of the United States, Canada will not have a deal that we can be confident will last. Whether it is a handshake deal, a verbal agreement, or a signed, sealed, and delivered written contract, it might change the next day.
He is impulsive and unpredictable, but once he establishes a goal, he sticks to it. I had always thought that his first comment, that Canada should be the 51st state of the United States, was made in jest. But once that notion was in his noggin, it never left. He is still saying it, and now he means it. He is very concerned about his place in history, and arranging (forcing) a successful fusion of Canada and the United States would be the ultimate accomplishment to be remembered on his epitaph.
Many of the U.S. tariffs are targeted directly at Canada. Just in the last few days, he increased tariffs on softwood lumber and heavy-duty trucks. Canada is THE major foreign supplier of softwood lumber and heavy-duty trucks. I suspect that these tariffs are intended to pressure Canada and increase the chances of a merger with the United States.
However, many people, including President Trump, have been surprised by the quiet but effective opposition Canadians have shown in response to his comments and actions. Tourists have cancelled their usual trips to the U.S.A. Provinces have pulled U.S. liquors from their stores. Consumers are checking more carefully where groceries and other goods come from. All levels of government are reviewing their purchasing sources. Canadians are selling their U.S. second homes. Canadians are flying the Canadian flag more than ever.
These Canadian efforts are starting to be felt. There is even some pushback to the tariffs in the U.S. lately. It is mostly from the U.S. northern states, but not exclusively. It is starting to register in the White House as well, and it may influence the Canadian negotiators as they try to reach a deal on tariffs. However, as I said, I do not believe that Canada can be confident of achieving a durable deal with the U.S. as long as President Trump is in office.
President Trump used to say that Canada has nothing that we want. He doesn t say that anymore. I think they would like to have Canadian tourists back. I think they would like to have their F-35 fighter jet deal back. I think they would like to have U.S. liquor back on Canadian shelves. And so on.
Now, there are a few issues where I agree with President Trump.
First of all, I never could understand why the U.S. southern border was left so open, allowing millions of illegal immigrants from Central and South America to enter the country with so little effort to ensure that they entered through proper established programs.
Another one is the flood of drugs into the United States. Many have talked about stopping the flow of deadly drugs, but little has been done. Now Mr. Trump is seriously curtailing drugs crossing their border. Recently he has implemented a policy of using the U.S. military to find and sink high speed drug boats. This is against U.S. law, the U. N. Charter, and Human Rights and Maritime Laws, but I bet it is working. In Mr. Trump's world, it needed to be done and he is making it happen. The end justifies the means.
I think that President Trump does have a tariff issue with Mexico, but not with Canada. For example, I bought a Bayliner boat two years ago. To my surprise, it was made in Mexico. The top was made in Mexico. The depth sounder was made in Mexico. The wiring was made in Mexico. The steering was made in Mexico. Parts of the MerCruiser drive were made in Mexico.
Bayliner Boats are owned by the Brunswick Corporation, which also owns SeaRay, Boston Whaler, and Trophy Boats. At one time, they were all made in the United States, but now they all have many models and parts made in one huge factory in Reynosa, Mexico.
When I searched labour rates for assembly line workers, the rates in Mexico averaged $4.65 an hour. Assembly line labour rates in the U.S.A. average $22.00. According to these numbers, U.S. skilled assembly labour rates are almost 500% higher than those in Mexico. Hence, the move by labour-intensive factories out of the U.S.A. to Mexico.
On one hand, this cost advantage has allowed Mexico to raise their standard of living and health. On the other hand, it has cost the USA a lot of jobs. Perhaps there could have been a better formula when CUSMA was negotiated.
In the meantime, many companies in Canada are contemplating moving to the U.S.A. because of the U.S. tariffs. A PricewaterhouseCoopers study indicated that 19% of Canadian manufacturers plan to move all or part of their production to the U.S.A. A KPMG study revealed that 48% of Canadian companies are preparing to shift production or investment south of the border. These are big numbers. The worst part is that once they have moved, they won t be moving back, even after President Trump leaves office.
Fortunately, Canada has more trees, more water, more hydro, more wind, more minerals, more oil, more coastline, more fish, more agricultural land, more manufacturing expertise, more high-tech companies, more ocean research, more universities, the most stable banking system, a respected international image, and a more stable government than almost any country on the planet.
Now it is up to Canada s leaders to find new markets for these products and ensure that Canada finally achieves its full potential. There will be controversial issues, but if we want to maintain our quality of life, we need to find compromises that allow us to harvest our resources and maximize our talents while still protecting our environment and meeting our obligations to Indigenous peoples.
It is easy to see that Prime Minister Carney has a two-pronged trade approach underway. He is trying to work with the U.S. while still aggressively reaching out to new markets in Europe and Asia. Certainly, we can no longer depend on the U.S.A. to be the traditional good customer they have always been.
I am sure that there will be turbulence along the way, but hopefully we will end up on solid ground with a much wider range of customers for our great Canadian products and services.
This will take time, but the initiatives have already started. Even in Amherst, a local entrepreneur just returned from Sweden where he made contacts that will help him manufacture innovative products here using Swedish technology and using all Canadian materials. The Canadian International Trade Offices in Stockholm and Halifax helped make the arrangements. Hopefully, we will see many of those new connections made.
If you or your company wants to make some international business connections, I might be able to help. Feel free to contact me at 902 397 1305.
Thank you for the question, Ed. I hope that the answer wasn't too long.
Thanks for reading
Bill