John Ivison: Any trade deal with the U.S. will cost Carney

Canada’s defence minister was asked on Monday whether the United States would be given preferential treatment in the purchase of military equipment, as part of any comprehensive trade agreement with the Trump administration.

David McGuinty is too grey in the temple to answer such a hypothetical question, and responded that because he is not at the negotiating table, he doesn’t comment on those negotiations.

But in all likelihood, the minister does not yet know the implications of the discussions linking trade to procurement.

At one time, it seemed possible that the government might cut the planned acquisition of 88 Lockheed Martin F-35s in half and buy a mixed fleet that included Saab Gripen fighters.

However, Trump’s threat to introduce across the board 50 per cent tariffs on Canadian goods on Aug. 19 has the potential to change everything.

It is a delicate moment for the Carney government — and the prime minister himself.

A deal with Trump, if such a thing truly exists, appears within reach. But its consummation may require a Faustian pact that shatters the prime minister’s reputation for grit and competence.

The Canadian public is cranky. An Angus Reid Institute poll showed that only 7 per cent believes the government should give in to U.S. demands to avoid tariffs. The number of people who back Carney to deliver a good deal has fallen since April.

The leader of the Opposition, who in March visited New York and said he rejected the idea of a rupture in relations with the U.S., is now urging a harder line by the government.

“No more caving,” Pierre Poilievre said in an open letter to Carney, that added Canadians deserve a government that “has the backbone” to protect jobs and sovereignty.

Polls suggest voters don’t think he would do any better with the president but he may have struck a chord when he said he doesn’t understand why Carney is making so many concessions — on the Gordie Howe bridge, the digital services tax and on the Netflix tax — before even getting to the negotiating table.

There is political risk for Carney in appearing to appease the president’s outrageous demands.

But there are very real economic risks in prolonging the pain of high tariffs. Canada has lost a net 50,000 manufacturing jobs since Trump returned to power, largely over tariff-related uncertainty.

But beneath the reckless presidential rhetoric about America not needing anything from Canada or Mexico, a more prosaic storyline appears to be playing out.

The U.S. Supreme Court’s ruling that declared emergency act tariffs unlawful, forced the administration to get more imaginative in order to impose tariffs without Congress’ involvement.

Sections 301 and 338 of the Trade Expansion Act — the “forced labor” and “unfair trading practices” provisions — are being used to bully Canada into making concessions.

But the president is following the game plan of his first term, where he winked at his U.S. audience and asked them to play along with him.

His allies like Republican senator Kevin Cramer call the rhetoric “friendly banter.”

U.S. ambassador in Canada, Peter Hoekstra, says Trump is a businessman. “Maybe you don’t like the way the president says it, but take it on the tone of what he is saying, which is: ‘We’re open to offers, make your case.’”

U.S. Trade Representative, Jamieson Greer, has been frank that the administration wants to see trade imbalances reduced and, in particular, is seeking changes on dairy quota, the Online Streaming act and an end to the ban on U.S. liquor in provincial distribution networks.

But there are no hints that the U.S. wants out of the CUSMA trade deal. In fact, Cramer said Greer recently told him that the two sides are “on a good track.”

Nothing can ever be ruled out with Trump but he does not have unilateral freedom to impose a 50 per cent levy on Canada.

Tariffs are unpopular with voters — up to 70 per cent of whom express negative views on them. The Yale Budget Lab estimates they cost the average U.S. household $1,100 a year.

The forced labour tariffs are already being challenged in the Court of International Trade by 25 states and a number of companies. Opposition to blanket tariffs by impacted businesses is said to be hitting Republican fundraising.

Legislation has been introduced into the Senate to reassert Congress’ authority over international trade.

Trump is seeing some success in his trade strategy — exports increased by 15.2 per cent in June, year on year, and Canada, as the second largest export market, is key to that.

In addition, far from not needing anything from north of the 49th parallel, Canada provides one quarter of America’s net crude, most of its potash, half its aluminum and a third of its uranium and softwood lumber.

Trump wants Canada to give generously but even he must realize that it would be madness to blow up the trading relationship.

The rumoured deal would see U.S. liquor returned to provincial shelves (even if, like the horse that is led to water, the president can’t make Canadians drink it).

The putative deal would also likely increase access to dairy markets, offer preferential treatment for U.S. defence contractors and tighten rules of origin on automobiles.

In return, tariffs on steel and aluminum would be lowered and the proposed new section 338 tariffs would be deep-sixed.

The anti-Trump zealots at home who want to go down fighting are wrong.

The trouble with being a martyr is that you get martyred.

Canada can’t win against the U.S. but it can leverage its value as a trading partner to negotiate the lowest effective tariff rate in the world.

Whether that is viewed as appeasement or pragmatism is in the eye of the beholder.

jivison@criffel.ca Twitter.com/IvisonJ