A headline in the business section of the Dec. 10 Toronto Star grabbed my attention: ‘Is Canada really ripping off the U.S.?’
He went on to throw out a number — $100 billion a year; the actual amount is closer to half that.
In this new Disney-style world of Donald Trump, everything he says, however ridiculous, must be taken seriously. The man’s thoughts are like driving along a winding mountain road without guardrails to prevent you plunging off a cliff.
Let’s begin hundreds of thousands of years ago. Paleolithic Homo sapiens, and earlier members of our family tree like Homo habilis and Homo erectus, made stone tools. At archeological sites in Africa, the Middle East and Europe, where our ancestors had camped, samples of stone were found that had come from hundreds of kilometres away.
The earliest stone tools were made of whatever stone was handy. As tools became more sophisticated, stone knappers (stone tool makers) began choosing their stone carefully to yield the best results. (A guide to the types of rock used in stone knapping is available.)
Special stone types were traded over long distances, enabling skilled stone knappers to create razor-sharp cutting tools, weapons and ornaments. Stone pairs, such as flint and iron pyrites, were known to make sparks when struck together. In many areas, one or both of these fire-starting stone pairs were rare — well worth obtaining via trade.
The agricultural revolution began more than 12,000 years ago, when groups of people began growing crops in the Fertile Crescent. Pastoralists (animal herders) had meat, leather and wool to exchange with farming communities for metal tools, grain, and root vegetables.
Such trade benefited both sides. Farmers had a poorer diet than that of their pastoral neighbours, so they benefited from the protein (meat) acquired through trade. (In pastoralists adopting agriculture, average height dropped 178 to 165 centimetres for men and 168 to 155 centimetres for women.)
Trade occurs when certain regions have surplus resources while others have too little for their needs. Regions exchange with each other to mutual benefit.
In the 19th century, some regions developed manufacturing techniques to make goods of better quality at lower cost. Great Britain’s manufacturing prowess surpassed that of continental Europe for most goods, but Germany’s chemical industry excelled, creating an opportunity for mutually beneficial trade.
In the late 20th century, we paid little attention while China gradually transitioned from making cheap toys and textiles to dominating the field in energy-efficient lighting, solar panels, basic chemicals, and, lately, automobiles.
President-elect Trump fulminates against trade deficits, but fails to understand trade properly.
The world’s largest stock market, by far, is the New York Stock Exchange (NYSE). Forty per cent (by value) of the world’s companies are listed on the NYSE. Its market capitalization (value of listed companies) equals the total market capitalization of the world’s next seven largest stock markets, in order of size: NASDAQ (United States), Tokyo (Japan), Shanghai (China), Hong Kong (China), London (United Kingdom), Euronext (Europe) and Shenzhen (China). The world’s two largest stock markets are American.
Stock market trading is a huge earner for the U.S. in a category called “invisibles” because most people don’t see them. Other “invisible” exports include financial services like banking and insurance. The U.S. is the world’s second-largest exporter of financial services, just behind Great Britain.
Other “invisibles” include products conceived, designed and branded “American” but manufactured abroad. The iPhone is a good example. Each iPhone “shows up in the U.S. trade balance as a $332.75 import from China, even though 45 per cent of the parts and components come from non-Chinese sources.
Actual Chinese value-added has been calculated at $104, meaning that each iPhone overstates the U.S.-China trade deficit to the tune of $228.75.” Trade in “invisibles” offsets the “visible” trade imbalance.
Trump proposes tariffs (e.g., 25 per cent on Canadian and Mexican goods and a 10 per cent surcharge on existing tariffs for Chinese goods), hoping to bring the manufacture of products like the iPhone, computer chips, metals and cars back to the U.S.
The immediate effect will be to raise American prices on most items sold by Walmart and various chains of dollar stores, not to mention a wide range of items like computers, televisions, home appliances, air conditioners, cars, and barbecues.
A tariff on imported Canadian lumber would increase the cost of American houses; a tariff on wood pulp would boost the cost of toilet paper.
If applied to electricity, the proposed tariffs will raise utility prices for home consumption and for American industry; if applied to Canadian petroleum, pump prices for gasoline will jump. How will Trump’s “base” like that?
Tariffs on Canadian aluminum, magnesium and steel would be felt by many American industries and passed on to consumers. If the manufacture of electric cars is to flourish, industry will need strategic materials like cobalt, nickel, lithium, graphite, manganese, titanium, vanadium, zinc, copper, and many rare earth elements (e.g., niobium, indium, cesium and gallium), most of which are found in Canada.
Once known for shoddy quality, Chinese industry has come a long way. Some of those products are now as well made as comparable Western goods — sometimes better. Their electric vehicles are shockingly good.
If Trump thinks American manufacturers can match Chinese industrial costs, he should think again. For a start, Chinese labour costs are far lower. Also, Chinese monitoring of workplace safety and environmental protection are lax compared to Western practice. Together with subsidized electricity, these give Chinese manufacturers a hard-to-challenge advantage.
In our capitalist world, companies continue to exist only if they make profits.
Long ago, American companies realized they could make goods overseas (largely, Asia) more cheaply than they could domestically. Televisions are an example. The last surviving domestic manufacturer, Zenith, went bankrupt some 35 years ago.
Much the same is true across the spectrum of consumer products: domestic appliances, cutlery, toys, tools, clothing, computers, cellphones and other items. The idea that tariffs might bring manufacturing back to the U.S. is unrealistic.
Cars, a very visible American industry, are no different. In 2023, imported vehicles made up 47 per cent of American sales. “By 2022, 84 per cent of the vehicles General Motors sells in the U.S. market will be some kind of truck or SUV. Ford’s ratio of domestic SUV and truck sales will hit 90 per cent; Fiat Chrysler’s will notch a whopping 97 per cent.”
One reason is advertising. Can manufacturers advertise their trucks and SUVs while neglecting cars? Since profit margins on larger vehicles are considerably higher, the manufacture of many cars (non-SUVs) has moved offshore.
That’s why applying tariffs to imported products would just raise American prices, lower sales, and hurt both American retailers and citizens.
There is no doubt the imposition of 25 per cent tariffs on Canadian exports to the U.S.A. would damage our economy — perhaps severely. However, the American economy will not escape unscathed. And the people likely to be hurt most are Trump’s most ardent supporters.
Will American voters realize Trump is not their friend?
Will Trump manage to deflect the blame to someone or somewhere else?
When will Canadian politicians understand Trump’s core strategy is to divide and conquer? By driving a wedge between Canada and Mexico, he hopes to deal with us separately. We should refuse to play his game.
Will Canadian political leaders ever develop a united Canadian front to face the threat? Stay tuned for the next episode.
As for me, I am glad we are not (yet?) the 51st state.
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 locally. As a member of BarrieToday’s community advisory board, he also writes a semi-regular column.
