Tariffs

My thoughts on tariffs?

Aside from the obvious that they hurt everyone, I also can't really complain about the other outcomes. Canada has needed to diversify trade avenues and address inter-Provincial trade for some time. If tariffs are the lever that gets this flowing, it is hard to call it all bad.

Make no mistake:

• I don't think these can offset the impacts of tariffs
• I don't think that they can be made maximally effective quickly
• I don't we will truly address all of the things that the government is promising

Longer term though, especially if Canada can do these things AND repair our relationship with the US as a trade partner it will lead to greater growth for the country.

Beyond that, this will hurt the US more. Everyone says it will hurt Canada more (and it will in the short-term). But the reality is that the US has more to lose. Canada also has more to gain. The number tossed around is that 80% of our trade is with the US.

Tariffs only "work" in 2 scenarios: when you have the local capacity but cannot compete on price or you are building the local capacity.

The US problem, and the reasons tariffs have not been used like this under any other administration is that Canada's primary exports are natural resources and raw materials (crude oil, lumber and potash to name a few). In other words, the problem is NOT capacity or development. Tariffs cannot magically manifest resources. 

The other problem is that these things are globally in demand. The reason we export so much to the US is a matter of convenience and wealth. We are physically adjacent to the US and they have a ton of money. Being our only trading partner we share a border with, it is simply quicker, cheaper and more efficient for us to offload our goods to the US. It is absolutely NOT about a lack of demand for these resources elsewhere.

We also have inter-Provincial trade barriers. In a world where we have the US a reliable trading partner we had little reason or need to address these concerns. For the first time, it seems like there is a real chance of eliminating a decent chunk of the red-tape between the Provinces.

To put things into perspective... Canada AND Canadians (an important distinction) are waking up to the notion that the US may not return the stability as an ally and trading partner any time soon. And this means that both the government and businesses are BOTH interested in diversifying trade.

This will take time and this is why the short term pain for Canada will be huge. But the appetite to actually get things done appears to exist. And once things DO get done, the pain for Canada ends and the pain for the US starts. Having more trade avenues means we aren't forced to price resources to keep them attractive to US buyers. It also means more demand. Both are forces which will drive up prices for the US in a way which will also profit Canadian business. 

The US benefits disproportionately from our dependence on them. Right now there are simply too many barriers to trade elsewhere. We are not the ones being subsidized by the US. Through a trade partnership leaving us at their whim, we subsidize them voluntarily by competing for their purchases in a market where we need the sales more. We drive the race to the bottom. And if Canada manages to succeed in diversifying trade, they are going to learn the extent of that truth. And THAT will hurt.