Jim Warren: Dazed and confused
The Saskatchewan NDP’s approach to our tariff war with Trump
It’s as though Carla Beck has not yet fully recovered from the “sunny ways” propaganda Justin Trudeau spouted in 2015 during his first election campaign as Liberal party leader.
Beck, the Leader of Saskatchewan’s NDP Opposition, naively assumes the united Team Canada response to the Trump tariffs recommended by Doug Ford and other elbows up Eastern Canadians will actually work.
Ford is promoting a “get tough on the Americans” response to our tariff problems. He imagines a pan-Canadian flourishing of hard-nosed patriotism whereby we punish the US with counter-tariffs and export taxes.
Ford wants us to pull together as flag waving Canadians and kick American butt. Unfortunately, supporters of Team Canada from Central Canada are fixated on applying export taxes to Alberta and Saskatchewan’s exports of oil potash and uranium. They hope to win the trade war regardless of what it might cost Westerners.
Beck explained how successful the united Team Canada strategy could be in an August 8 interview with Tamara Cherry on 980 CJME radio’s morning talk show.
Ms. Beck indicated that a province like Saskatchewan had some very important cards it could play at the negotiating table. Beck said those cards include things like potash and uranium—commodities vital to the Americans. She assumes this sort of retaliation would leverage concessions from Donald Trump.
Tamara Cherry asked Beck if she supported making use of that leverage. The Opposition Leader answered with an obfuscating word jumble worthy of Mark Carney or Kamala Harris. She was certain that Canadians should join together and retaliate. And she was confident about the cards we should play. But then avoided saying whether the NDP are actually committed to doing either.
Pick a lane Carla.
Export taxes are applied to products on this side of the border. They increase the cost of those products to importers. If the export taxes are high enough our products can become too expensive relative to the prices our competitors are charging. As a result our exporters will need to lower the prices they charge their customers to account for the export tax. They have to do this to remain competitive at international market price levels. This reduces the level of revenues our exporters can earn. That, in turn, has a negative effect on corporate revenues and employment levels. Some manufacturing firms could find it difficult to remain solvent if they stay in Canada.
Applying export taxes to our oil, potash or uranium exports would no doubt get Trump’s attention. But he’s unlikely to throw up his hands in defeat. One option the US will consider is finding alternative sources for those commodities. That may not be all that easy for Americans to do in the short term, which is why the export tax weapon can initially be so powerful. However, over the long term the search for alternative sources might be successful.
Take potash, for example. If export taxes on potash are high enough to hurt American farmers, the Trump administration will come under pressure to cover the farmers’ added costs. That would be a short term solution while the US looks for new suppliers.
For the past several decades Saskatchewan has competed with Russia and Belarus for the title of world’s largest potash supplier. After the outbreak of the Russia-Ukraine war, international trade sanctions were applied to potash from Belarus and Russia. (Belarus has cooperated with Russia by way of allowing Putin to assemble invasion forces on its territory.)
The sanctions have been a boon to Saskatchewan’s potash miners. But what are the chances Trump could do something outrageous like waive the sanctions on Russia and Belarus to reduce the pressure on American farmers and the US treasury? Canadian producers could be left scrambling to find new markets.
The net result is that export taxes are a tax on our exports and our exporters. Applying them is like punching yourself in the face to teach your opponent a lesson.
Similar outcomes, including reduced market share and revenue losses, can be expected if export taxes are applied to our oil and uranium.
Five days after her radio interview Ms. Beck had to take a position on what to do about the new 75.8% tariff on Canadian canola. Beck, along with other prairie politicians, appears to assume that the hands across provincial borders unity of Team Canada will ensure the prime minister will make dealing with our trade disputes with China a priority.
The real reason China hiked the canola tariffs is the 100% tariff Justin Trudeau placed on Chinese EVs.
Chinese government subsidies have in large measure been responsible for the incredible advances in Chinese EV technology. Chinese EVs are more technologically sophisticated, more energy efficient and far less expensive than EVs produced in Europe and North America—little wonder car makers in those regions have demanded their government impose stiff tariffs on Chinese imports.
In the absence of tariffs, the assumption is that many European and North American EV manufacturers will not be able to compete with Chinese models. They’ll get their clocks cleaned.
The federal government, automakers and EV battery manufacturers have invested billions in developing the capacity to manufacture batteries and to adapt assembly lines at auto plants. What are the chances they will want to walk away from those sunk costs and reduce or eliminate the tariff on Chinese EVs?
Furthermore, federal green transition mandates essentially forced the auto companies to make those investments. The car makers will be calling their lawyers if the Carney government sells them out on behalf of canola farmers.
Thousands of good jobs in Ontario’s auto assembly plants and auto parts factories are at stake.
The governments of Canada and Ontario will not support the elimination of the EV tariffs on behalf of canola producers in the West. The best we can expect is a modest amount of temporary cash relief for affected farmers and promises about finding new markets and patching things up with China.
What the foregoing example illustrates is that the wheels will come off the Team Canada bandwagon as soon as the provincial governments involved discover that the cost of export taxes will rarely fall evenly on all provinces.
When Eastern Canadians call for export taxes on oil, potash or uranium they will run into a brick wall. Alberta and Saskatchewan will vigorously oppose any such measures.
If Ontario autoworkers imagined their EV tariff protection is being sacrificed to bail out prairie farmers they’ll go ballistic.
It is easy for the Doug Ford and the Eastern “patriots” to do the elbows up chicken dance to their hearts’ content if the cost of getting tough on the US is borne by oil, gas, potash and uranium producers from Saskatchewan and Alberta. Put the shoe on the other foot by threatening job losses in Ontario in support of farm incomes on the prairies and Ford will change his tune.
It’s the Canadian way.
Unfortunately, if the past is indeed prologue, when the economic interests of Central Canadians are in conflict with the fortunes of Canadians from Alberta and Saskatchewan, the East wins. If oil gets expensive in Central Canada like it did in the 1970s we get the NEP. Back in the 1980s when there was high inflation due to a boom in Ontario’s industrial sector, prairie farmers went broke paying the 18% interest rates imposed on all Canadians to fight inflation in Ontario
The Liberal government showed its hand again several weeks ago when it passed legislation that guaranteed supply management for dairy and poultry farmers would never become a bargaining chip in trade negotiations. Supply management for dairy farmers is a sacred institution in Quebec. It has the most dairy farmers per capita of any province.
As it happens, one of Donald Trump’s principal irritants when it comes to trading with Canada is the supply management system. He has identified it as one of the reasons he’s getting tough on trade with Canada.
Quebec takes a win while businesses in other sectors from other provinces bear the costs of US tariff reprisals in response to supply management.
It doesn’t require deep insight or a crystal ball to predict who the winners and losers will eventually be.
It’s a Liberal tradition, keep the voters in Ontario and Quebec as happy as possible. So what if the West gets annoyed, they have no power in parliament. That’s why Liberal elections strategy is based on the maxim “Screw the West we’ll take the rest.”
Jim Warren is an adjunct professor and lecturer in environmental sociology at the University of Regina and a regular contributor to PipelineOnline.ca