Trade War Thoughts
I was a little surprised to read an article which claimed that Canada would suffer more than the US from a trade war.
I get the arguments. If you look at a trade war between JUST the US and Canada and ONLY in the short term... there is little room for doubt. Canada will lose. Trade doesn't recovery instantly, and Canada is more heavily invested in the US than the US is in Canada.
But, that misses two things. Firstly, the US isn't JUST starting a trade war with Canada. It is upsetting trade relations with virtually everyone. And, it doesn't really consider the long term impacts. I think considering either of those 2 points alone completely changes the dynamics. And in tandem utterly decimates the argument.
In a global economy, the only questions that matter in a trade war (in the long term) are; "can we sell our surplus elsewhere?" and "can we get our imports elsewhere?". And from what I see in Canada, the answer to both of those should be a resounding yes. The US on the other hand NEEDS Canadian softwood lumber, and potentially other things.
Combine that with the fact that they are running the risk of a trade war with China, Mexico and others... and they may not even win in the short term. Between these countries, the direct "loss" to each country may be less than the direct damage to the US between just those parties. But, the overall may very well be a death by a thousand cuts scenario. Basically, the US runs too lean. It is a fairly large population for the land mass and that means that there are a lot of things it needs which it simply can't produce enough of domestically.
Let's make the math simple (and fictional). Let's say every trade war the US magically results in a 0.1% impact to it's economy and a 0.5% impact to those it engages with. With just one war, the US wins. With 5 wars, the US breaks even against every partner. And with 10 it fares twice as bad as any one country it fights with. The real world numbers are obviously not so consistent, but the principle is solid. Each additional trade war increases the burden on the US economy additively, even though the impact to each target country is more or less static.
The US can likely only afford trade wars for long periods of time with it's largest trading partners maybe one or two at a time. If they were JUST targeting Canada I think my tune would be different.
Targeting multiple large trading partners at once? Idiotic. Canada could, say, make agreements with China to soften the blows to each other. And in fact, may be forced to make such agreements. And, if those trade relationships solidify, the US could find themselves in a very unfavorable place when they finally end their trade war. With Canada and China more committed to trade with each other, the things the US needs from those countries may remain more expensive than before even when the tariffs disappear.
If Trump targeted just Canada but maintained trade relationships with other countries, then those other countries would have less incentive to seek out expanded trade relations elsewhere, including with Canada.
This is where a multi-faceted trade war over a longer timeframe completely changes the dynamics.
Yes, absolutely, Canada will hurt in the short term from a protracted trade war, regardless of what else goes on. Industries don't adapt overnight. Trade agreements take time to ratify. Business relations take time to establish.
But, as long as there is another place for the goods to go, they will eventually go there.
And more concurrent trade wars just creates more parties looking to setup trade with anyone other than the instigator.
I get the arguments. If you look at a trade war between JUST the US and Canada and ONLY in the short term... there is little room for doubt. Canada will lose. Trade doesn't recovery instantly, and Canada is more heavily invested in the US than the US is in Canada.
But, that misses two things. Firstly, the US isn't JUST starting a trade war with Canada. It is upsetting trade relations with virtually everyone. And, it doesn't really consider the long term impacts. I think considering either of those 2 points alone completely changes the dynamics. And in tandem utterly decimates the argument.
In a global economy, the only questions that matter in a trade war (in the long term) are; "can we sell our surplus elsewhere?" and "can we get our imports elsewhere?". And from what I see in Canada, the answer to both of those should be a resounding yes. The US on the other hand NEEDS Canadian softwood lumber, and potentially other things.
Combine that with the fact that they are running the risk of a trade war with China, Mexico and others... and they may not even win in the short term. Between these countries, the direct "loss" to each country may be less than the direct damage to the US between just those parties. But, the overall may very well be a death by a thousand cuts scenario. Basically, the US runs too lean. It is a fairly large population for the land mass and that means that there are a lot of things it needs which it simply can't produce enough of domestically.
Let's make the math simple (and fictional). Let's say every trade war the US magically results in a 0.1% impact to it's economy and a 0.5% impact to those it engages with. With just one war, the US wins. With 5 wars, the US breaks even against every partner. And with 10 it fares twice as bad as any one country it fights with. The real world numbers are obviously not so consistent, but the principle is solid. Each additional trade war increases the burden on the US economy additively, even though the impact to each target country is more or less static.
The US can likely only afford trade wars for long periods of time with it's largest trading partners maybe one or two at a time. If they were JUST targeting Canada I think my tune would be different.
Targeting multiple large trading partners at once? Idiotic. Canada could, say, make agreements with China to soften the blows to each other. And in fact, may be forced to make such agreements. And, if those trade relationships solidify, the US could find themselves in a very unfavorable place when they finally end their trade war. With Canada and China more committed to trade with each other, the things the US needs from those countries may remain more expensive than before even when the tariffs disappear.
If Trump targeted just Canada but maintained trade relationships with other countries, then those other countries would have less incentive to seek out expanded trade relations elsewhere, including with Canada.
This is where a multi-faceted trade war over a longer timeframe completely changes the dynamics.
Yes, absolutely, Canada will hurt in the short term from a protracted trade war, regardless of what else goes on. Industries don't adapt overnight. Trade agreements take time to ratify. Business relations take time to establish.
But, as long as there is another place for the goods to go, they will eventually go there.
And more concurrent trade wars just creates more parties looking to setup trade with anyone other than the instigator.
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