COLUMN: How economics work despite Trump's 'monumental ignorance'

Economics is often called “the dismal science,” a description originally coined by Thomas Carlyle in 1849. Economics isn’t actually “dismal” as we understand the word today, but it’s definitely a “science.”

Science explains processes or describes the world around us, hoping to predict the future, at least in part. The sciences are not perfect, but generally work well for physics and chemistry, but less so for biology where processes are more complex.

Economics is important in our modern world. Processes and products which don’t make economic sense simply fail.

Economics operates in nature, too. Flight is costly in energy to birds. Their daily energy needs are met by finding food – to fuel the search for food. Of course, some is used to escape predators and some for reproduction. Clearly, birds (and other animals) failing to find enough food die.

On the other hand, too much can also be a problem. Years ago, my daughter and I watched two loons fishing in Algonquin Park. Sunset was coming. The birds tried to take off for “home,” but failed to launch. Both birds did amusing “face plants” into the water – several times. Clearly, there was too much fishy cargo on board!

They eventually “motor boated” across the lake, wings flapping and webbed feet paddling furiously. Their chicks probably enjoyed a good meal that evening. Did those birds learn a lesson in “balance”?

When we shop for food, we use economics. Looking for bacon, we pick up several packages, perhaps selecting ones with less fat. We check the price, aiming for least expensive. But how about that “thick-cut” style? Some are “maple cured,” a definite plus. In the end, we choose the cheapest brand with the qualities we desire. That's economics.

Industry does this, too. A manufacturer is looking for car starter motors. Obviously, they must have enough power to do the job – at minus-40 Celsius in Canada. Does it fit into the space available around the engine? What about reliability? Warranty repairs are expensive. Clearly, purchase price is important, but so is the ability to supply the required number of units- and on-time delivery track.

This is economics in action — hundreds of industries searching for millions of components from thousands of suppliers. The objective is profitability.

Every industry consists of competitors making similar products. Products costing too much or whose reliability is poor lead their makers into bankruptcy. Folk railing against “excessive profit” must keep this in mind. Competition and bankruptcy are capitalism’s “superpowers.” Communist Europe never understood this – a major factor leading to its demise.

If you believe corporate bankruptcy is not your concern, understand that not all investors are wealthy.

The stock-market portfolio supplementing my income relies on investments in profitable companies, as does the Canada Pension Plan and other pension plans.

Banks and insurance companies invest. If an insurer’s investments fail, your house and car insurance rates rise. Insurers investment returns help pay for claims. If a bank fails, savings accounts are jeopardized. If a government bails out a failed bank, that spending reduces funding available for road building, health care, higher education, policing, etc.

The search for profit and reliability led most industries to “offshore” manufacturing. As a result, your televisions, cars, clothing, toys, computers, kitchen appliances and cellphones are mostly made abroad.

American politicians want to force these industries “home" by levying import tariffs, which will increase retail prices immediately. If manufacturing does “come home,” prices will remain high. After all, products or their components were made abroad to reduce costs. Can’t someone explain that to Mr. Trump?

Donald Trump gloated that the Americans “don’t need anything from Canada,” even as Canadian firefighters were helping extinguish California’s wildfires — using an aircraft designed and built in Canada.

His boast shows monumental ignorance.

Consider aluminum. About 60 per cent of American aluminum imports — 75 per cent of consumption — are Canadian.

Some is domestically smelted,  ut the rest comes from the United Arab Emirates, China and Australia.

Most American aluminum goes into automobile engines and car bodywork to save weight. Land Rover bodies have been aluminum since 1948; Tesla uses aluminum body panels, as do Ford F150s. Aircraft contain a lot of this light metal. Beer cans and cooking foil are important uses.

Once Mr. Trump was made to recognize the economic importance of aluminum to industry, he lowered his proposed tariff from 25 per cent to 10 per cent – but could (and did) raise it again on a whim.

Realistically, the U.S. cannot expand domestic aluminum production. Inexpensive electricity resources are tapped out – and why aluminum smelting moved to Canada.

Over the past two decades, American smelters have been closing because they cannot compete with Canadian product. Some Canadian smelters are owned by Alcoa, an American company.

Electricity is another commodity the U.S. buys from Canada — mostly Quebec, Manitoba, British Columbia and Ontario — because ours is cheaper than theirs. Although Canadian power only forms a small part of total American supply, it is important in New England, New York, California, Michigan, Minnesota and northern prairie states.

Americans don’t realize they import more than 50 per cent of their crude petroleum from Canada.

There are other sources, but these are more expensive. Canadian petroleum arrives at American refineries by pipeline. To switch suppliers, new pipelines (expensive) would be needed. American refineries were set up to process heavy Canadian crude. Reconfiguring them to accept, say, light Saudi crude would take time and money.

American farmers rely heavily on potash from Saskatchewan, the world’s largest supplier. Tariffs on potash will increase U.S. food prices.

Roughly 30 per cent of the lumber (think housing prices) used in the U.S. comes from Canada. Other products from Canada include nickel, uranium, automobiles and vehicle parts. This illustrates how important Canada has been to America as a reliable, economically valuable partner.

Mr. Trump’s position seems to be that Canada should become “the 51st state." Unfortunately for him, an overwhelming majority — 80 to 90 per cent — of Canadians reject this idea. Americans agree statehood should not be forced on us.

Economics was a factor in the fall of the Iron Curtain. USSR satellites (Poland, East Germany, the Baltic states, Ukraine, etc.) despised working for their Kremlin overlords. The Russian expression “they pretend to pay us and we pretend to work” described the situation well.

Freed from Soviet Russia’s incompetence, nations like Poland, East Germany, Latvia, Lithuania and Estonia flourished economically.

Canadians would gain little or nothing by becoming an American state, or “satellite.”

Mr. Trump’s threatened and actual tariffs have forced Canadians to confront our largely superficial differences. Even Alberta’s premier fell in with her colleagues and our prime minister.

Trump’s threats substantially reduced Pierre Poilievre’s Conservatives' lead over the Liberals.

Under Mark Carney’s leadership, Liberal fortunes may continue to improve.

Former prime minister Jean Chretien’s tongue-in-cheek remark that we should award Trump the Order of Canada for his success in uniting our country was hugely funny.

A final consideration is the absence of a logical plan, and it is clear that no professional economist was involved. Tariffs were initially threats, then 25 per cent. They have been adjusted down or removed for some commodities, then adjusted up, doubled and down again.

Policy appears to be made not in the Oval Office but from the seat of a golf cart.

This is Mr. Trump’s second and final term as president. An erratic, seat-of-the-pants approach will not persuade industry to invest. Industry requires decades of profitable production to recover their investment. They want consistency and stability.

The next president will likely return America to its pre-Trump stance in just four years.

In addition, the NATO nations have been buying American military hardware for years. Recent criticism and overt disrespect for Ukrainian President Volodymyr Zelenskyy, coupled with praise for Russian President Vladimir Putin have led to dismay in Europe. They are wondering if they should continue buying (expensive) American kit now that Trump seems to support the aggressive “Russian bear.”

If Trump is willing to force Ukraine to surrender part of its territory to Russia, should South Korea and Taiwan trust their American alliance? We all wonder if we can continue to trust an America which looks to be moving close to Putin.

Somebody should try to explain that to Trump.

Barrie resident Peter Bursztyn is a self-proclaimed “recovering scientist” who has a passion for all things based in science and the environment. The now-retired former university academic has taught and carried out research at universities in Africa, Britain and Canada, and is a former NDP candidate. As a member of BarrieToday’s community advisory board, he also writes a semi-regular column.