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Are We Heading for a Trade War With Canada?

The possibility of conflict with Canada has often been a joke in media. The 1995 movie Canadian Bacon imagines an unpopular President manufacturing a war with Canada out of thin air, in order to improve his approval rating. The South Park movie has American parents blaming Canada for the corruption of their children, rather than take responsibility themselves.

It’s regarded as a joke and an absurdity because our neighbors to the north tend to be peaceful and friendly and don’t really bother us. However, Donald Trump seems to have a view towards making those absurd-sounding conflicts a reality, by provoking a trade war with Canada.

Tweets and Tariffs

Last week, President Trump expressed his displeasure with how Canada conducts trade business with the U.S. It started with his administration’s proposal to impose a 20% tariff on softwood lumber imported from Canada.

This is a much bigger deal than it sounds. The North American Free Trade Agreement guarantees the elimination of trade barriers between us and both Canada and Mexico. To impose a tariff on Canadian imports would necessitate, as President Trump put it, “tweaking” the agreement.

Of course, this has been in the works since January, when Trump signed an executive order to renegotiate NAFTA. The focus of the order, however, was mainly on bringing back manufacturing jobs from Mexico. Now, however, Trump seems to be going after Canada as well.

In addition to proposing the lumber tariff, Donald Trump also took to Twitter to decry Canada’s effect on the dairy industry. He claimed that Canada’s dairy protections were unfair to Wisconsin dairy farmers, and that our country “wouldn’t stand for this.” (We recently discussed how Wisconsin has its own policies in place to favor locally produced products over imports.)

Canada’s Response

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Needless to say, Canada was not thrilled with this sudden animosity by the President. According to Commerce Secretary Wilbur Ross, the imposed lumber tariff would, in fact, be retroactive, and cost Canada approximately $5 billion a year. The Canadian government has said that they would fight these proposed tariffs in court to protect its lumber interests.

Of course, this disagreement is nothing new. Trump’s sudden imposed tariff may be a bit out of the blue, but concerns over NAFTA’s effects on the U.S. economy have been going on since the agreement was first signed in 1994. In fact, last year, lumber producers approached President Obama, asking him to look into U.S. subsidies of the Canadian lumber market, which made it difficult for American companies to compete.

NAFTA Pros and Cons

The truth is, NAFTA is a double-edged sword. Many, including Trump, have argued that free trade with Canada and Mexico limits jobs in the U.S. However, the river does flow both ways, and while cheap imports may have killed jobs in certain areas, increased exports made possible by NAFTA have actually created about five million new jobs in the U.S.

Cheaper imports have also helped to keep prices lower for American consumers. Unfortunately, it’s also been integral in keeping wages lower. The fact that many companies could easily manufacture their goods more cheaply in Mexico makes it difficult for American workers to negotiate for higher pay.

There are certainly problems with NAFTA, and renegotiating the agreement could certainly be beneficial to our country on a number of fronts. However, provoking a trade war with Canada is probably not the best way of going about it. Importing certain goods from Canada, such as lumber and dairy products, may cause problems, but it’s also true that we export more goods to Canada than to any other country, including the entire EU. To provoke them in this way could be detrimental to the trade we do with them, and hurt our economy far more than it helps.

Some believe that Trump’s initial actions in this matter were just a negotiating ploy, Wer Only time will tell. We’ll just have to wait and see how this plays out.