Facing a tale of two realities

“Donald Trump has made it very clear that he’s willing to break American commitments to free trade. That’s why it’s critically important that any broader agreement, any resolution to our trade relationship with the U.S., include truly enforceable provisions that ensure that the agreement will not be breached by either party.”

— Former international trade minister Ed Fast

“This is one of the greatest periods for overseas investment in Canada that we’ve seen in the century, and it may be unprecedented, because we have to wait for the rest of the year. … Money is pouring into Canada like we have not seen from everywhere. Stocks and bonds are the obvious beneficiaries.”

— Matt Winkler, editor-in-chief emeritus of Bloomberg News

“I’m very confident in the Canadian economy. We are very resilient. Canadians are resilient. And we’re going to continue to do the work that needs to be done.”

— Canadian Finance Minister Francois-Philippe Champagne

“I don’t know how this all ends, but right now it looks like it’s going to end in tears.”

— Colin Robertson, former Canadian diplomat and vice-president and fellow at the Canadian Global Affairs Institute

It can be difficult to know just who to believe.

For anyone watching trade negotiations these days, perhaps you can relate. The tone of media punditry in Canada often feels like the opening lines of Charles Dickens’ historic novel, “A Tale of Two Cities.” For those who don’t know it, here’s a recounting:

“It was the best of times, it was the worst of times. It was the age of wisdom, it was the age of foolishness. It was the epoch of belief, it was the epoch of incredulity. It was the season of Light, it was the season of Darkness. It was the spring of hope, it was the winter of despair.”

Those few sentences could well describe the state of the nation at the present moment as we all collectively hold our breath for the outcome of Mark Carney’s high-stakes trade negotiations that have been taking place this week.

Canadian businesses and political pundits have been watching closely as federal trade officials have been in Washington trying to avert new 50 per cent U.S. tariffs that are set to take effect on Aug. 19.

While Canada has been dealing with tariffs imposed by U.S. President Donald Trump for more than a year now on Canadian steel and aluminum, as well as non-CUSMA compliant energy and potash shipments, these new proposed tariffs target nearly US$20 billion in Canadian goods, which according to the Financial Post, could shave 0.3 to 0.6 percentage points off Canada’s GDP growth over the next year.

The public impression of the state of those negotiations, however, and the strength of Canada’s hand depends on what side of the podium you’re listening to.

Canada either finds itself in one of two situations. Either we’re in an existential crisis as we attempt to strike a deal with a U.S. administration bent on our submission, or we’re in a strong position with enough economic leverage to walk away from the negotiating table without a deal and expand our trade with other, non-U.S. partners.

The reality is actually somewhere in between.

The United States has far more economic heft than Canada — there is absolutely no doubt about that fact. Their population and economy is several times larger than Canada’s, and we simply do not have the economic size to “win” a traditional power contest against them.

Much of our economy has been built on the foundation of access to the U.S. market, with the vast majority of our exports heading south. This means we are structurally more vulnerable to border tariffs than anything we can impose upon our southern cousins.

Our steel, aluminum, auto manufacturing and softwood lumber industries have faced heavy cost burdens from these ongoing duties, which have led to delayed corporate investments and workforce downsizing.

More taxing on our economy, according to Export Development Canada, are the never-ending tariff threats against our economy, with the perpetual state of economic brinkmanship negatively impacting both large- and small-business investment, delaying important investment decisions.

But there is reason for optimism. Our government has been pivoting toward alternative international markets, and as a result our non-U.S. export shares have risen dramatically. And our jobs market has been in recovery mode with stabilizing employment numbers.

We also do have significant leverage when it comes to negotiations, as several U.S. midwestern and regional refineries rely heavily on Canadian crude oil, natural gas and electricity. American manufacturing and auto sectors remain dependent on integrated cross-border parts and materials. And Canada controls vast mineral resources that are needed for advanced technology and national defence in the United States.

The wild card, however, is Trump himself. There may be no deal possible with a man and an administration that sees the only possible victory as one where the U.S. gets everything it wants, and Canada gets the short end of the stick.

And there’s no guarantee that the Trump administration would even honour a deal, if one is reached.

At best, we may find ourselves in a better position economically to cut a trade deal than we did more than a year ago. But this tale of two realities may only have one real outcome.

And it could ultimately come down to what kind of pain our country is willing to endure.

» Matt Goerzen, editor