US Protectionism and President Trump
INTRODUCTION
The biggest single danger to the world in mid-2019 is the possible re-election of President Donald Trump. A majority of American voters did not want Trump as president in 2016, but they wanted Hillary Clinton even less. That could happen again if, by the time of the 2020 election, the Democrats fail to find the right candidate and acceptable policies, and if they are too divided. If Trump was to win a second term, he would become largely uncontainable. He would have shown three times in a row that he was the smartest political guy in the room – unexpectedly winning each of the Republican nomination, the 2016 presidential election, and the 2020 presidential election.
Canada once again faces having to play another long game opposite the United States. It has previously endured challenging times with its southern neighbour. At the very least, Canada will increasingly diverge from the United States in important ways. Americans find it difficult to get along with each other – and that divisiveness will extend to the relationship between Americans and Canadians. In the meantime, Canada’s economic policies need a major reboot. Fourteen years of borrowing abroad to consume at home leaves Canada owing some three-quarters of a trillion dollars borrowed so Canadians could spend more than they earn. That is not a good position to be in as the current US and global expansions approach their end. It is even riskier in a Trump world.
The basic thinking of my essays on US protectionism and President Trump remain what they were when I wrote them. The world has so far avoided the worst immediate outcomes. The longer-term impact, however, is that the United States is making itself less and less trustworthy. The recent abandonment of the Kurds to Turkey is only the latest example – one bad enough to alienate Trump’s strongest allies in Washington. Trustworthiness is not something Trump sees as an asset, but it is, in fact, huge. Nor does he see how falsely treating imported steel and aluminum from Canada as security risks undermines American claims that Huawei is a security risk. The good North American trade news is that there will almost certainly be an acceptable trade agreement – whether it is the old NAFTA, the old Free Trade Agreement, or the new NAFTA.
The answer to my question “Has Brexit and now Trump brought about a new world?” is yes. What we do not know is what kind of world that will be. It will primarily depend on the next US election outcomes because, for the foreseeable future, the United States is the only country with the range of strengths able to lead on a global basis. But it will need more help than Trump recognizes. There are too many threats to US interests for it to handle them all alone.
The Russia cloud over Trump has dominated Washington since before the Mueller Report. Something about Trump and Russia does not add up, but in mid-2019 it looks as though he will not lose the presidency because of Russia. Meanwhile, the “Washington swamp” has not been cleared up (which may not matter in 2020). Trade and immigration are not so much real policy challenges in Trump’s mind. They are more political opportunities to pursue with his base as long as the fallout does not hurt his voters too much economically. They will not be made any better off, but Trump needs these issues as “fighting words” for his base.
Canada remains behind the same three eight-balls I mentioned in my June 2015 essay, though, as I explain, there are some promising improvements:
• none of the current political leaders is yet fit for what Canada’s economic future needs (this problem remains, but the growing global hi-tech competitiveness of Toronto, and to a lesser degree of Montreal and Vancouver, is an increasingly positive development);
• real trade wars exist (fortunately, they have recently moderated somewhat); and
• possible Canada unity problems over pipelines are a danger (again, they are far less ominous than they were before, and a way out may be emerging with the real technological possibility of no/low carbon oil sands oil).
I said four years ago, before Trump and Brexit, that Canada needed to rethink its global role. It has not done so. The Trudeau government by and large has done as well as possible with US and European Union trade. It has, however, been largely naive and, at times, even juvenile, in Asia.
Trudeau’s “sunny ways” optimism of 2015 has not served Canada well in the world of “every nation for itself” that has emerged since his election in 2015. The biggest Trudeau government failure to date is that Canada has kept living beyond its means, has underperformed in preparing Canada’s economy for the world of the future, and has no fresh thoughts about how to cope with the way the future seems to be shaping up. Bottom line: in 2019 Canada faces a lot of debt.
1. NAVIGATING THE WORLD DURING THE TRUMP ERA*
“You can always count on the Americans to do the right thing – after they’ve tried everything else,” said Winston Churchill. This observation is key to navigating a Donald Trump–led United States in political turmoil. Voters do their best with what is on offer. Last November, American voters chose Trump and the Republican Party.
Reserve Judgment, But …
Seasoned commentators said, first, that Trump could not get the Republican nomination, and then that he would not become president. He did both. Many now say he cannot succeed as president, but perhaps he will. There is much to worry about. The United States has for some years now experienced its greatest political turmoil since the Civil War. We must be watchful and careful. We should also keep open the possibility of Trump’s success.
Success was never more than a possibility. Unless the web of Russia questions can be quickly resolved, the challenge will not be whether he can succeed but whether he can last. The US turmoil he exploited could now bring him down.
The Big 2017 Question
The United States built and led the post-1945 global order by broadening the inclusive order at home and abroad and containing what could not be included. The big 2017 question is whether a new world order can be reshaped under some form of US/China co-leadership. Or will the centrifugal forces within the West and between it and the rest of the world undermine that possibility? If or how Trump survives will be crucial. It is an ominous moment.
The Trump-led United States and Brexit are the greatest challenges to the West since the 1938 Munich Crisis. They are key to how things now turn out with Western Europe, Russia, and China. Russia has an increasingly hostile policy of combined aggression (in the Crimea, Eastern Ukraine, and Syria) and subversion of political institutions in Europe and the United States. A West subverted from the outside and undermined from within will become a weaker defender against overt external aggression (Russia).
China understands that a destabilized West would hurt a Chinese economy still dependent on Western economies. A denuclearized North Korea could help make possible a United States and China-led reshaped global order. This reorganization could in turn help fend off Russian aggression and subversion – step one of a long journey to bring Russia back into a new global order. Fortunately, the important members of the initial Trump foreign-policy and security team are of high quality.
Is the United States Still a World Player?
The Munich failure to face up to an expansionist, authoritarian Germany came when the United States was not yet a world player. Winning the Second World War and creating the postwar inclusive global order were possible because the United States became part of the solution.
Today’s Munich comes from centrifugal forces within the West. The United States is part of that problem. If this challenge cannot be countered, the world will enter a darker, more authoritarian age. The post-1980 Ronald Reagan/Margaret Thatcher world of free markets and democracy has proved to be the trigger for the first global transition moment in history. Can the rest of the world help the United States as it pulls back from the Reagan/George W. Bush era of economic, financial, and geopolitical overreach? Barack Obama started the country on its withdrawal path. Can a now weakened Trump (if he survives) deal with the still unfinished US overreach without falling into underreach or dangerous new overreach?
The Arrival of Trump
Donald Trump rode to the US presidency partly on voter disaffection with a Washington that no longer worked (primarily because of no-compromise Republicans). The other, bigger but related forces stemmed from the founding nature of the United States and the rising challenges of the American-led inclusive global order. There are big questions – Trump himself; what he most deeply wants from being president; his personal strengths and limits; and the kind of country the United States has become. Can its strengths be mobilized and its shortcomings overcome so it can move beyond its current identity and existential crises? Can it be relied on to help contain the centrifugal forces in itself and the world?
Trump is faced with enormous, fast-moving, unavoidable, and interacting systemic challenges from America’s technological change, global trade, and inclusiveness strengths, now in manageability overreach. What they have brought is increasingly hard on more and more Americans. Can Trump and the Congress get on track to do better? The Republicans lack a sure governing majority, and the uncompromising Democratic side (Bernie Sanders and Elizabeth Warren) stridently oppose Trump. Now the Trump presidency has been weakened by its inability to put Russia behind it, making its prospects worse.
There are now two Americas – the people who can cope with the forces of change and those who feel they can’t. Mutual accommodation is the answer, but it goes against America’s natural drive for division. Russia has become more than a distraction. At best, it is creating a wounded presidency, with reduced leverage at home and abroad.
Is America Still about the Future?
The United States has always been about the future – a “new world.” Now, more people are looking to the past, not because they are unwilling to move forward (only a minority are “deplorables”) but because they are afraid they cannot. They need recognition and concrete sources of encouragement. Where that encouragement can come from is one of the big questions for the West’s future. Ideology, individualism, and a culture of winners and losers are all barriers to figuring out how to move forward as one country. Both the Republicans and the Democrats have deep-rooted ideologies that exclude, divide, and interfere with thinking and seeing – making mutual accommodation almost impossible.
Trump realizes the need to compromise to make deals. Sometimes he shares more policy instincts with Democrats than with the no-compromise Republican Party he has taken over. But he needs more inclusiveness before he can become a full leader. That may require a national crisis. What will the future US glue be? Trump does not believe in American exceptionalism. If Americans lose faith in the American dream, what will happen? Could the only American glue become shared fearfulness and enemies?
Is America No Longer Forward-Looking?
Can Trump communicate confidence in a United States able to mutually accommodate its strengths and the everyday economic and identity challenges its strengths bring? How will the political fight go between fearful (hesitant to move forward) and confident (raring to go)? Can the two come together? It could take years unless forced by some crisis.
Many saw the Obama coalitions of 2008 and 2012 as threats to the country itself. Some version of them may return. If the 2012 Obama coalition had held in only three key states in the 2016 election, Trump would not be president. The Republicans chose as their presidential nominee a man whose policies, had he been a Democrat, they would condemn out of hand. The hard-line Republican no-compromisers must now compromise to “clean up the Washington swamp.” The history of the Obamacare bill so far shows how difficult that will be.
The Trump of “the deal” had only himself to satisfy. He could always leave the room. Now he has political supporters, a country, and a world all with a stake – a room he can’t leave. No US president can. Trump understands that successful business deals require “enough” for all parties.
Politics is harder; governing even harder. Trump is not stupid – he knows he cannot always get what he wants. But he has never had so much reality to respond to, with so many people affected, or so many people out to get him. Does he get what is great about the United States, and what keeping it great will take? Does he realize that the ability to attract more and more followers is how one becomes great?
Which Mr Trump Has Come to Washington?
Voters will pressure Trump on his vow to make Washington work – a promise even bigger than ending Obamacare. His leverage with the Republican Congress will increase or decrease, depending on how the public likes what he does. Two Donald Trumps will likely emerge in this Dr Jekyll/Mr Hyde world. The US political system works only if the president has political leverage, but the growing Russia issue risks losing that power. It makes Trump much harder for the Republican Congress to live and work with.
Trump faces a series of mutual accommodation challenges, beginning with himself. Then there’s the challenge of mainstream Republicans on both the domestic and foreign-policy fronts, where he’s considered, respectively, too liberal and too isolationist. Other challenges come from his own base.
Negotiators should warily take the slow and bumpy path toward one-at-a-time normalizations (real relationships likely beyond reach) and reasonable accommodations. The world is in a dangerous situation right now as it waits for what happens in Washington. The United States began to lose its domestic post-1932 capacity for mutual accommodation after the civil-rights legislation split away the Southern part of the Democratic coalition. After the 2008 election, mutual accommodation became almost non-existent. If the United States is to move forward, some mutual accommodation is essential.
Have Brexit and Trump Brought a New World?
The post-1945 forces of integration and disruption on the world stage are becoming unmanageable; the centrifugal pressures from within, hard to contain. Trump cheered them on, particularly during the US election. Meanwhile, Britain decided to pull out of the European Union (Brexit). As the United States experiences its most divisive moment of political turmoil since the Civil War, the remaining months of 2017 will tell much of the story. Will the big systems push back and find a focused path forward that works? Or will things move farther further down a path of divergence and dangerous division? A defiant Trump doubled back to his earlier calls for closer Russian ties after firing FBI director James Comey. Will he bring himself down?
Since its foundation, the United States has followed an individualist and isolationist path, except in the period from 1945 to 2000 (when it responded to the global failures of 1914–45). The current US political turmoil, and the challenges coming from the European Union and Britain, have created a dangerous global moment. The United States has huge economic, military, technological, and innovation strengths. These strengths are vulnerable in a racially divided country split between rich and poor, the confident and the left-out fearful; a country awash with guns, drugs, and more demoralized people.
The world has to figure out how to deal with this deeply challenged nation led by a man who uses people of opposite views to create a chaos of differences which he then navigates for his own purposes. As president, he inherited an ongoing chaos of views among his own base voters and the Republican Congress. He has never had to deal before with systemically interconnected markets, the responses of other countries, and uncompromising Republican and Democratic parties at home. More divisive decades likely lie ahead, as American limitations from its past and a weakened president interact with today’s global centrifugal forces.
Is a New-Compromise Washington Possible?
The biggest realistic hope of the 2016 election – a new-compromise Washington – was dealt a big blow with the failure of the first Obamacare bill. However, no one becomes president of the United States without having many strengths. Trump’s greatest survival strength may be his remarkable “dot-connecting” ability (though, so far, he has not done a very good job on connecting the domestic politics of the Russian dots). His greatest weaknesses may be his short attention span and self-centredness. What Trump proposed to Ohio governor John Kasich as his possible running mate now looks prescient. Kasich as vice-president would look after domestic and foreign policy, leaving it to Trump to make America great again.
Trump’s first job is to move immediately on Russia and reconstruct his White House team with one or more people able to play the role Trump envisaged for Kasich. The second is to face how difficult it is to develop policies that work in today’s complicated world. The third is to overcome the deep divisions within the Republican Congress and to combine Republican and Democratic votes when essential. Trump could still surprise one more time. If not, who then knows? There is always the possibility of another deal – but not of another United States. Can Trump extend himself once more and expand the art of the deal to include a capacity for leadership based on more inclusiveness and accommodation? This very notion goes against both Americans’ and Trump’s natures.
Trump may prove to be an agent for two of the changes the United States and the world need: a return of compromise to Washington, and a reshaped, somewhat less inclusive and less global order, co-led by the United States and China. The post-war inclusive global order is now under threat. It will survive only if it can become somewhat less inclusive and somewhat less global. The element needed to get there would be the containment of a nuclear-threatening North Korea. That would give China the stable trading order it needs and avoid a potentially disruptive United States on the trade front.
The possibility of a new world order is a huge opportunity for China and the United States – a safer world, a reinvigorated global vision, and a new project. But how to get from here to there? The increasing US-governance and rule-of-law stresses do not help. No matter what, there will not be much rest on the Trump journey ahead. Until it is behind Trump, the Russia problem will at best get in the way of success on all fronts; at worst, it will bring the end of his presidency. The United States has two sources of political turmoil – its own historic nature and Trump. The first will last long after Trump.
Breaking Good News
The Department of Justice announcement of the appointment of former FBI director Robert S. Mueller as special counsel to an investigation into Trump’s Russia ties will stanch the bleeding for the moment. Nothing less could do that. Adults are at last in charge.
2. CANADA’S PATH FORWARD DURING TURBULENT TIMES*
First, Quebec separatism. Now, US separatism. Fortunately, separatism is something Canada knows how to handle.
Canada is behind three big eight-balls: an economy not yet fit for the future; real US trade risks; and a possible Canadian unity problem from pipelines. Prime Minister Justin Trudeau could now simultaneously face all three of these challenges. Canada must get its economy back on a strong track, particularly with a United States in political turmoil led by a wounded president, and Alberta/BC could be the new unity challenge.
The United States Is the Long-Term Problem
President Donald Trump is a high-risk US president. He will not change. Reliable relationships are not possible, and if you get too close to him, you could get badly burned. What Trump says matters less than what he does; the internal and external pushbacks matter even more. The underlying sources of the deep and persistent division in his country will take years to sort out.
Canada has a unique combination of US strengths – an unmatched understanding of dealing with a difficult, powerful neighbour as well as broad and positive continuing relationships with key institutions and individuals there. Americans in general know that Canadians lend a hand when they need it. How Canadians use these connections matters. Ottawa, so far, has reached out well. Other Canadian communities, starting with business, need to address the big picture better and leverage Canada’s particular positions in the United States where it counts.
Canada in an America-First World
Global fundamentals within and between countries will be a primary world challenge over the next 25 years. Canada probably has the best chance of succeeding in a Trump America-first world. Current flows in trade and services between the two countries are in broad balance (right now, Canada is in deficit). When you take into account net investment-income flows, Canada has always been in overall current account deficit with the United States. Canadian imports matter in politically key US states. A retaliatory Canadian border tax on non-business tourism, for example, in big Trump states such as Florida and Arizona would quickly hurt politically.
Trade is not the only area affecting Canada’s relationship with the United States. Canada also has important relationships through the North Atlantic Treaty Organization, the North American Aerospace Defense Command, and the Group of Seven, as well as close security working arrangements with the United States. Trump may be learning that this is not a world where going it alone works.
Canada, from its beginnings, has experienced the best and worst of the United States. For its part, the United States has often recognized that the asymmetrical relationship means that Canada sometimes needs exemptions from US global policies. In the current fear- and enemy-driven US politics, Canada is not seen as an enemy or a people to be feared.
Canada can help Trump get political wins that also work for Canada. Ottawa got off to as good a start as possible – not just with Trudeau’s Washington visit but in mobilizing long-standing relationships with both US government and non-government players.
The challenge is to use the above talking points with all kinds of US contacts. The Canadian business community, in particular, must use and create opportunities to tell these stories. If all parties work hard on the Canada side, the outcome can become a win-win story for both countries – economically and politically. It can be done but won’t be easy.
Canada always has to play the long game with the United States. Between 1945 and September 11, 2001, both countries were closely aligned on most things. But on many fundamentals, Canada and the United States are very different: mutual accommodation versus division; persuasion versus force; use of collective effort versus extreme individualism; and openness to the use of government versus an overwhelming distrust of government.
US Strengths in the Postwar Era
The United States after 1945 had two great abilities: to attract almost everyone from everywhere (though not Russia or China, initially) to its larger purposes; and to get others to follow. No other country in history can match that record. Canada can help Trump and the United States get back to these strengths. It also needs to bring these strengths to a new vision and a new global order. Only the United States can take this leadership role.
Every era ends in either overreach or underreach. The years from 1945 to 2000 were largely productive. The way forward is not to undermine but to build on their achievements. Churchill said he looked backward to get a better view of the future. If the United States in the 1980s and 1990s had looked backward, it would have had a better sense of what had worked so well and avoided much of the Reagan/George W. Bush overreach that must now be undone, and the dangerous kind of Trump underreach on climate change and the Trans-Pacific Partnership.
One major strength for Canada is that it is part of North America, but the basic imbalance within the North American free-trade agreement is a problem. NAFTA trade disproportionately benefits Mexico, which has big surpluses with its partners. US politics and the United States’ and Canada’s global current account deficits will make it impossible to continue the disproportionate trade surpluses that Mexico has with each country.
Any NAFTA renegotiation has to start from the fundamental balance of Canada-US economic relations and the fundamental imbalance of Mexico’s economic relations with its two NAFTA partners. The three countries have become economically intertwined, and it will not be easy for the United States to avoid doing itself more harm than good on its Mexican flank.
There is merit in the Mexican president’s idea of a stronger North America opposite a rising Asia, but it is one that would have to be based on a vision shared by all three countries. Mexico will have to do some heavy trade lifting to make that happen.
North America’s large current account deficits are supporting the rest of the world by importing their goods and exporting jobs to them – an untenable situation given the current US political landscape. Canada is right to want to keep NAFTA, but it cannot do for Mexico what Mexico must do for itself to get a better three-way balance.
How Best to Cope with the United States
Canada has had an unstable United States to deal with several times in the past, such as the threats that came from the American War of Independence, the War of 1812, and the Civil War. But if war comes today, it will be over trade. The trade wars of the 1930s brought global depression and the Second World War.
At that time, the big countries could not find the shared vision or the project to move from the old world before 1914 to a new global one. Today, with the world once again in the midst of huge and troubling transitions, the challenge for Canada, North America, and Western Europe is how best to move forward with a divided and unpredictable United States embroiled in a bumpy process of withdrawal from overreach.
What ideas and steps should guide Canada’s diplomacy with a strongman US president who has been steadily weakened since his inauguration and is now wounded – possibly fatally? Most politicians are more driven by pain avoidance (losing) than pleasure-seeking (winning). Trump’s driving force is the pleasure of winning – as both he and others see it.
Canada’s way forward is to explore all the possible positives and negatives for Trump. The pain that matters is any that affects Trump directly or indirectly. Diplomacy that works requires the opposing side to understand the political pain that an agreement can help to avoid. Canada’s strongest approach to the contentious trade issues surrounding NAFTA – softwood lumber, a border tax, and a “Buy America” policy – is, first, to know more about everything that matters to us than the other parties do; and, second, to have and optimize the best set of relevant relationships.
Negotiating Amid the Chaos
Chaos was something Trump could always manage as a businessman. Chaos does not work so well for the White House. The firing of former FBI director James Comey is a good example, with its confused and conflicting stories. This erratic messaging is impossible for both the White House staff and everyone else to handle.
The combination of multiple Russia problems and an out-of-control White House will make it difficult to move anything forward in Washington, including NAFTA renegotiation. This stalemate makes the task of Canadian and Mexican negotiators decidedly high-risk and, at some point, perhaps impossible. Amid all this chaos, slow will likely be better than fast.
What Canada Must Do
Canada needs to work harder on doing everything it can to build its economy. Its biggest shortcomings of the past twelve years have been living beyond its means; the failure to build an economy that is better suited to the future; and the failure, in the post-Brexit and Trump world, to adopt policies that will attract the “best people” to drive a successful private sector. A stronger private-sector-driven economy will make it easier for Canada to live through a period with a self-centred United States – and to prepare for a possible fight ahead.
Trump is cornered by a combination of economics and politics. There is no money for his election promises. Right now, with the Russian investigation and a chaotic White House, he has lost the presidential leverage that hard congressional politics require. With the president and Congress all under the Republican banner, if the United States cannot pull itself together now, when will it? Fortunately for Canada, this turmoil may be its greatest protection against a bad NAFTA outcome – a border tax and Buy America.
Mexico has got itself through its share of foreign economic crises. The NAFTA review comes at a time of domestic political stresses that will be very difficult for Mexico. Canada and the United States could help more if their current accounts with other countries could get better. Canada so far has not been destabilized by the US political turmoil. Its stronger politics and economics make it less vulnerable to destabilization than Mexico. All three partners will have to help improve the Mexican NAFTA imbalance in a way that strengthens stability in each.
Canada needs both a pain-exaction and a pleasure-giving strategy. Its task now is to know how to execute it. It must also put its mind to a post-NAFTA renegotiation vision and project for North America that is more suited to the world ahead.
3. CANADA MUST ACT FAST ON TRADE AND COMPETITIVENESS TO COUNTER TRUMP*
Nine hundred days make a difference! It’s 2018, not 2015 – neither the best nor worst of times. Sunny ways and the middle class still matter. But federal Liberal politics and economic and trade policies need a huge reboot.
Everything for everyone now depends on the United States, but it’s a tale of two Americas: the isolationist America of a century and a half after the War of Independence, and the global-leader America that emerged between 1932 (Franklin Roosevelt) and 2016 (Obama). Was the latter an aberration or one more step forward for an increasingly great America able to make its next big forward pivot? Is Donald Trump’s America a temporary setback or a revived American isolationism? Canada must now assume the mostly safe – for Canada – United States of the past eighty-five years may be gone for many years.
Canada must move quickly – before the US midterm elections in the fall – on trade, debt, and competitiveness. For eighteen months, Canada has tried to negotiate with an intractable Trump, for whom facts do not matter. NAFTA is still alive and may, or may not, largely survive. Tariffs on steel and aluminum are not a response to any unfair Canadian imbalance.
Trump may yet put recession-causing tariffs on automobiles, which Canada would have to counter. One possibility might be a per diem tax on Canadians for every day beyond two or three spent in the United States. Such a penalty would hurt in at least two Trump states – Florida and Arizona.
Trade wars are not the way. In an intertwined world, no country can win. Canada – despite the solid balance in the overall economic relationship – is still the most vulnerable to a trade war with the United States. (China, with its big US current account surplus, is a close second.) It must start to explore, first with Europe but also China, what kind of “second-best” trading order may be possible. It would not have to exclude the United States. It’s the best alternative to a trade war and a go-it-alone United States (the kind of world Trump has long believed in).
While the United States is free to go it alone, there is no place for a United States of bilateral deals free to undo multilateral ones. The numbers are irrefutable that Canada is a net US economic plus. Canada must make that case as it works for a different collective global response. The United States can hurt Canada greatly, but has never successfully bullied Canada. Before November, Canadians must talk directly to ordinary Americans – quietly, positively, as friends – about how fair and balanced our economic relations are with them. This people-to-people relationship is still beyond the reach of governments, but that could change. If the United States cannot get along with Canada, with whom can it?
On the trade front, the United States is about to make the geopolitical mistake the Soviet Union made when it took over Eastern Europe. American ambassador to Moscow George Kennan foresaw that overreach would weaken the Soviet Union at home. In the end, it resulted in its actual collapse. Now, the postwar order could also collapse if Trump underestimates the damage to the United States of losing long-time friends and family.
Canada must move quickly to get a “second-best” trading order on the table. This might help drive the Republicans to finally end their Munich-like appeasement of Trump – either containing trade wars or providing a second-best alternative.
At home, Canada must reverse the weakening of economic disciplines prevalent since 2006. Prime Minister Justin Trudeau’s current weak fiscal discipline and Bank of Canada Governor Stephen Poloz’s weak monetary discipline see the country headed for an estimated $71 billion current account deficit in 2018 – crazy at a time of the strongest and most synchronized US and global economic expansion in decades (repeating the Stephen Harper mistake of 2009 of borrowing from abroad, not to build Canada’s economic strength, but to spend on current consumption).
Canada needs a new macro policy to strengthen private-sector global competitiveness and address Canada’s now $2.1 trillion of consumer-sector debt, some $560 billion from borrowing abroad. Despite a weakening dollar, Canada is becoming less competitive. One real and symbolic policy for investment and entrepreneurship would be a capital-pool lifetime approach to taxing capital gains. This would make Canada entrepreneurially more competitive, and the reinvestment of capital gains would help reverse its savings shortage ($71 billion this year).
Trump is a zero-sum guy. Trade is not zero sum. The global trading order is a system. Trump does not understand the fundamental system’s nature of things. China and Germany have unjustifiably big current account surpluses. The United States has moderate current account and steel surpluses with Canada. Canada helps global growth with huge (unsustainable) current account deficits. There is a basis for fair-trade US compromises from China, but not from Canada. Over all, Canada-US trade is already fair. Any changes need to be two way. The best global trade compromise would be substantially reduced Chinese and German current account surpluses.
Private-sector market behaviour may be the only way forward in today’s dysfunctional US political scene. For example, the biggest long-term challenge the United States faces is the technology battle with China, but its politics are hurting its chances of attracting the best people from everywhere. A far-sighted Amazon private-sector decision to have its second headquarters in Toronto would mean Amazon, the United States, and Canada together could all have unbeatable best-people access.
The shared Trump-Putin goal is to destroy the Western order. But Trump may be dangerously cornering himself. He finds it easier to break than make deals. Canada was at the centre of the US-led postwar effort to build a safer and more prosperous postwar world. If there is to be a new “second-best” trading order, Canada again needs to be at the centre. Trump’s America of trade wars with friends and broken alliances has become too dangerous not to respond to.
Putin understands one thing Trump does not. Weakening America’s alliances helps him and hurts America. This is a bigger moment than ending the postwar global order. A new Dark Ages could be the result.
* Published in the Globe and Mail, May 20, 2017.
* Published in the Globe and Mail, June 10, 2017.
* Published in the Globe and Mail, August 6, 2018.