Canada and the New US

It was back in my Nov. 10th MP report that I last raised the subject of then President Elect Donald Trump where I speculated among other things that the Keystone XL pipeline approval was a strong possibility while the likelihood of seeing a national carbon tax in the United States was not.  
 
Given the recent inauguration of now President Trump there is certainly a new level of concern for what this will mean to Canada, in particular to the many small business owners who depend upon either directly or indirectly free trade with the United States.
 
At this point there is only speculation to answer this question however there is in my view a pattern emerging to what direction the Trump administration is heading in trade renegotiations. What is that pattern? Thus far it appears that those countries that most enjoy a trade surplus at the expense of the United States are potentially being targeted. Mexico, as one example, currently enjoys a $60 Billion dollar trade surplus and already manufacturers such as Ford have announced they will abandon planned investment in Mexico and instead bring some of those dollars back into the United States. While many around the world see this as protectionism across the border it is viewed as nationalism in an effort to increase well-paying US manufacturing jobs in the auto sector. We should not overlook that here in Canada our Federal Liberal Government also just secured a major investment with Honda for upgrades to an automobile plant in Ontario. The primary difference in approach is in Canada over $80 Million was offered to Honda in joint Federal and Provincial corporate subsidies whereas in the United States the Trump administration threatened an import tax to achieve a similar outcome.
 
China is suggested to also be a potential target of the Trump administration considering it currently enjoys a trade surplus of close to $370 Billion with the United States. The primary concern expressed from the Trump administration is manufacturers taking advantage of lower labour costs to move jobs outside of the United States into countries such as China. Although seldom reported this is not a new concern for the United States. Under the former Obama administration the United States filed some 16 World Trade Organization complaints against China alleging unfair trade practices. The Trump administration has suggested further increasing tariffs potentially as high as 45% to encourage manufacturing investment to remain in the United States. The Trudeau Liberal Government by contrast has expressed interest in going in a very different direction by potentially establishing a free trade relationship with China, who currently enjoys a trade surplus over Canada of roughly $46 Billion annually.
 
So where does this leave Canada with the United States? From a trade perspective Canada and USA have a far more balanced relationship. In 2015 Canada enjoyed a trade goods surplus of $15 Billion however an offsetting trade deficit on services at $27 Billion meant that overall the United States had a total trade surplus of $12 Billion. When one considers the total value of trade in goods and services between Canada and United States is over $660 Billion it is clear this relationship is overall working well for both countries.  Likewise in Canada there is typically no significant labour savings in manufacturing when compared to the United States. Generally lower corporate and small business taxes along with the preferable exchange rate have been Canada’s leading assets for attracting investment. The Trump administration is not unaware of these factors and has committed to lowering US corporate taxes to levels similar to here in Canada. What is of concern is that Canada is increasing payroll costs through expanded CPP and implementing a national carbon tax– both increase costs that a competitor in the United States would not have to swallow. At this point I am more concerned that Canada will make itself less competitive for investment and that can harm jobs that will benefit other countries. It should also not be overlooked that many countries who do enjoy a large trade surplus are not implementing carbon taxes or other cost increases onto employers. Here in Canada investment continues to decline while net new jobs are not increasing. Let us all hope this trend will start to be reversed in 2017.
 
As always I welcome your comments, questions and concerns and can be reached at Dan.Albas@parl.gc.ca or toll free at 1-800-665-8711.