HANNAFORD： There's no choice, so do a deal with Trump, says Jack Mintz.
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Summary
Last week, Canada was told by President-elect Donald Trump that, along with Mexico, they would be facing a 25% tariff on their exports to the US unless they got control of north-south trade in illegal drugs and illegal aliens trying to sneak into the US from Canada. With me tonight to talk about that is Dr. Jack Mintz, one of Canada s foremost economists and original thinkers.
Transcript
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Good evening, Western Standard viewers, and welcome to The Hannaford Show, a weekly politics
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Last week, Canadians were told by President-elect Donald Trump that along with Mexico, they
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would be facing a 25% tariff wall on their exports to the US unless they got control
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of north-south trade in illegal drugs and illegal aliens trying to sneak into the US
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from Canada. With me tonight to talk about that is Dr. Jack Mintz, one of Canada's foremost
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economists and original thinkers. Good evening, Jack.
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Great to have you. Jack, two questions to start. First, President Trump has a reputation for
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making outrageous demands as he launches into negotiations. It's no secret he's written a book
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about the art of the deal. So is he serious? And the second question is this. Although he's talking
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about illegal drugs and aliens, is that really the issue or is the deal somewhere else? Well,
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what do you say, Jack? Well, first of all, on, you know, is this kind of like typical Trump stuff
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like we saw during 20 in the first mandate where he you know certainly threatened tariffs of all
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sorts of things and of course he opened up NAFTA the negotiation over our free trade agreement with
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the United States of Mexico and you know some of it was bluster in the sense that he was trying to
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get certain deals made it's a transactional person but as we saw with the NAFTA the deal
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was opened up and there were some changes that were made and that did happen i think we're in a
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very different situation now uh for this mandate um i don't think i don't think it's exactly the
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same as before uh first of all i think there's very broad support uh in the united states for
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favoring domestic production uh and i think also uh the republicans are looking at tariffs
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not just only to protect industries in the United States and draw investment back into the United
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States, but also as a source of revenue. And so Trump has said during the election that he wanted
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to put in a broad-based tariff on all countries. You talk about 10 or 20% at that time. And I think
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there's actually a very serious possibility that he may want to do that as a way of trying to
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not just achieve his trade goals but also to get the kind of revenues he would need and this isn't
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the only source but we one of the sources to help pay for the tax cuts and the need to balance the
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budget or at least try to move to a smaller deficit in the United States so if you're going
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to sort of make all the things come back together I think we're in a very different situation right
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now. And of course, his threatening of 25% terrorists in the case of Canada and the United
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States, I think that is something where perhaps relief would be given if the right actions are
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going to be taken. And I think that is his goal. Sorry, go finish up. Well, I was going to answer
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your second question, which was, you know, about the border and security of the border.
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You know, the initial Canadian response was, oh, this is a much bigger issue for Mexico than it is for Canada.
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Like, why are we, you know, being brought into this?
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And you might argue that it's a bit unfair to put 25% on Canada, just like Mexico,
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given that, you know, the millions that have been involved in illegal immigration coming into the United States.
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compared to what i've just read recently the americans have caught close to 200 000
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trying to come into the united states so from the northern border but i think there are some issues
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that need to be dealt with and we can get into more detail later on but as it was reported today
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out of the out of the people that the americans have caught at the southern and northern border
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as potential terror terror terror terror suspects that that 86 percent of them are coming from the
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northern border and that is an issue i think that we're going to have to deal with but just as a
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comment on that you've heard no doubt that um premier smith here in alberta has decided to
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No, well, I think they can maybe try and do some of it.
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I think, you know, you have, for example, in Ontario,
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And you may use the local police forces to try to maybe catch people who become illegal immigrants.
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But I'm not sure we can do very much about it because there's a legal process.
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Just like the United States, once they identify themselves to be a refugee or something like that,
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then there's a process that's involved to look at the claim.
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and that could take quite a few, quite a long time before it's dealt with, you know, since it's two years.
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And so I think that, you know, there is an issue, I think.
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Well, certainly not our problem, but if we succeed in reducing the number of people trying to crash the border to the U.S.,
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then I have to assume that's going to work in our favor.
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Well, I think, you know, there's two different, you know, there are two different types of issues involved.
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There are people that come through our border, including airports, et cetera, that come on the West Coast and East Coast, et cetera, not from just the United States.
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And this is what the concern is, is that what the Americans are arguing, they're terrorists, actually, or terrorist suspects, that it's easier to go through Canada than to go through Mexico to come into the United States.
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whether how true that is you know i'm no expert but going back to your question uh what i was
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going to say was that in the end the federal government has to uh enforce the border they
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they have the um you know the canada border and uh border operations is their purview it's the
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it's federal responsibility and i don't think the provinces can can do as much as what the
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program it has to do okay so i think what you were saying just a moment ago is that it has now become
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acceptable to discard free trade or at least acceptable in the united states to discard free
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trade in favor of trade barriers that support other political objectives um i mean we have a
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free trade deal with the u.s the united states mexico canada agreement and applying a 25 tariff
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with that agreement in place would indeed seem to be discarding a free trade agreement
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so excuse me people are saying he'll never do it really because it would hurt americans to pay more
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for oil, gas, lumber, and motor cars sourced in Canada.
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Is that a, are we just kidding ourselves? Is that actually going to help us?
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Well, I think we, you know, there is an economic theory that I think is very important to
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first lay out, and that is who pays for a tax or like an excise tax on beer,
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or who pays a tariff in the case of when we're talking about trade.
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uh and and the theory will tell you that uh some of the tariff uh will be shifted forward to
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consumers some of it will be shifted back to producers including the retailers who might
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have to absorb some of the costs with lower profits and that depends on you know on uh
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you know what the sense of you know how you know the size of the markets and the sensitivity of
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demand and supply to to changes in price so to give you an example in the case of oil let's say
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let's say United States puts a tariff on Canadian oil sold to United States well first of all the
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American American market gets heavy oil there's different sources of heavy oil including Mexico
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and Venezuela, which right now is not very important, but there's also some other sources
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internationally. And so the Americans could decide, well, we're going to put this tariff
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on Canadian oil, but we'll buy more oil from other sources, particularly heavy oil, which is needed
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for the refineries in the Gulf Coast. In that case, a significant part of the tariff is going
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be borne by producers in Alberta with respect to the tax on the oil.
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Now if the United States can't get the same amount of heavy oil from other places then
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some of that tariff is going to get shifted forward to American refineries that are going
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to have to pay more for their oil and then of course that will raise gasoline prices
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So probably some of that tariff is going to get shared between the two countries.
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And it's not all going to just fall on American producers.
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And that's why the discussion is somewhat been incorrect in talking about the impact
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case of Canada, except for the Trans Mountain pipeline now, we can't sell our oil anywhere
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else in the world. All of it is piped down to the United States. 90% of our oil is sold
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to the US. And so if you put a tax, if the Americans put on a tax, we have no options.
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We can't say, oh, we're going to take our oil and ship it somewhere else. We can with
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the tmx we got you know we have maybe 900 000 um barrels per day that we could kind of shift over
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to some other countries but even then you have to sign long-term contracts and all sorts of other
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things to do that the main point is that we're really beholden to the u.s when it comes to oil
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but we're also really beholden to the u.s with respect to the auto industry which is also very
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integrated in north america again 90 percent of our autos and auto parts are sold to the united
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states of you know of our exports and you take these two industries you know both oil gas refined
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petroleum and the other one being the auto sector which is both cars and parts you add them together
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that's one third of our all of our exports that we sell to the rest of the world and those two
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industries are completely behoven to the united states in terms of our our total trade 90 of it
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so we don't really have very many options and so that means that you put a tariff on
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there's a good chance that we're going to absorb some of that tariff it's going to hurt us it'll
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probably hurt the u.s a bit too but in the end i think we're going to we're going to suffer more
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of it given the size of the market in the u.s and given the options that the u.s has that we don't
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have well you think of softwood lumber if they apply a tariff to that i think we're of our main
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we're their main source for you know what the basic construction material of a house is so
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that's going to have an upward pressure on home prices in the united states i would have i would
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have faulted do we have any leverage there perhaps well again it depends on on uh you know how much
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is um you know can we divert to other countries um that's what that's the point of this theory
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it tells you that uh if you're even even even if uh us is reliant on our wood which again there's
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other wood coming from norway and other countries that could be bought but even if they are um
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you know very much beholden on u.s uh or canadian uh lumber sales uh the question is do we have
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options to sell our lumber somewhere else and in the case of lumber we actually do sell to asia so
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we do have some options uh that uh you know are available to us and so probably i suspect in the
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case of lumber more of the of the tariff would fall on consumers in the united states uh but
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you know there was a study done on the chinese tariffs that the americans put on you know trump
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had originally put on and biden continued them actually people forget this is not just trump
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this is now something that's done on both sides of the of the aisle in the united states both
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republicans and democrats support these things and the chinese tariffs were found to be significantly
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shifted forward to the u.s but surprisingly not so much through higher consumer prices but impacting
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retailer market margins in the united states was kind of an interesting story in itself
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from what you're saying jack it it seems to me that diversification of canadian trade
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should be the long-term goal of any government and certainly i i do well recall writing several
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speeches for mr harper back in the day in which we were applauding new deals in europe and in
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in asia and so forth but this seems to have fallen by the wayside um you know the
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with agreements we had agreements all over the globe we wouldn't be in such a tight spot now
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and if we had ramped up the infrastructure to export oil and lng off the west coast
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do you think that mr trudeau now regrets cancelling and discouraging those projects
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oh i don't know if he regrets it he's so concerned about climate change
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even though natural gas sales for example internationally if it leads to the reduction
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of coal consumption internationally that actually could be a win in terms of climate change not a
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loss aside uh i don't think he he regrets it at all i think that that's because his main and only
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priority has always been climate change even even now he talks about you know how climate change is
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more important than putting food on your table so you know i think i think i don't think he regrets
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it at all uh but i but it is a good example uh you know we we talked about you know trying to
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beef up our transportation networks uh there's been the northern corridor proposal uh trying
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trying to have more opportunities to sell our goods and services internationally and oil and
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natural gas is a good example lng we had tremendous number of proposals made around 2010 to build lng
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plants in bc and only one went ahead and it's now just coming on to production soon and so uh we we
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have not we have we you know we've talked the game when it came to to oil
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and gas but instead we didn't do anything after all that time except for
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the team X pipeline that's been the only one that had any success and at the same
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time when you look at some of our other sectors you know we we still tend to be
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very focused on the u.s. and 75% of our total exports go to the United States I
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I just mentioned the auto and the oil and gas sector
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because they are our two biggest export earners
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and yet 90% of that is sold to the United States,
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which means that we do have a little more diversification
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on our trade with the United States, which perhaps is not surprising
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because that's the shortest distance for much of our production in Canada.
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You just have to hop over the border and send some things down
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into that very big U.S. market, which is now 25% of world GDP.
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But, you know, as I was buttering my toast this morning, I reach into the fridge and I pull out a fresh pound of butter.
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And it occurs to me that we get all head up when Trump makes these kinds of demands, but we still have supply management.
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So when it comes to free trade, how clean are our hands?
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Well, I think, you know, I think the article that I had this morning, I think, was trying
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to make the point that for years, especially after the Second World War, we adopted a principle
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In fact, the British did through the British Empire back, you know, even earlier after
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the abolition of the corn laws in Great Britain in 1846, but, you know, the idea of free trade
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became very very much an objective for governments in order to keep prices lower for consumers and
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also specialize in the industries that you're most able at and have the highest productivity
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and lowest unit cost to sell abroad and so those were some of the things that we did
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in that many countries pursue and when you go to before 2008 if you look at the kind of advice the
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world bank gave the international monetary fund as well as other other in within many countries
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the idea of opening up borders allowing for import competition all those things were good
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they were viewed as very good things to do free trade was an objective didn't mean that we had a
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perfect free trade where you know there were certainly areas that you know we did that uh
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you know where we tried to you know protect industries uh but still the principle was
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accepted and i think today that that's all gone now that has changed in 20 years no longer our
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country's free traders so we can we can easily and canada is included there uh you know we can
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blame trump for doing what he's doing and you know criticize him but on the other hand we're not pure
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either and supply management is a perfect perfectly good example uh everybody will
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write or any economist where's the salt will tell all the terrible things about supply management
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first of all it leads to higher butter prices higher milk prices because of the restrictions
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on imports coming into the country uh it also it also leads to inefficient farms you know the
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typical dairy farm in canada it's got 100 cows i remember talking to somebody in oklahoma once
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when i was there and he was a he was involved with dairy farming and he told me they had 2 000 cows
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you know the operations are so much larger in economies of scale and they're exporting a lot
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and we know that australia and new zealand got rid of their supply management i had a great student
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this year at the School of Public Policy at the University of Calgary, Ben Harford, who wrote an
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excellent capstone paper explaining the difference between Australia and the Canadian experience.
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Australia got rid of their supply management. They did it over time by putting a tax on milk
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that paid for the quotas to reimburse farmers for that. But what happened is that you not only
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are able to have more sales going abroad, but you also get a consolidation that lowers
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prices uh you know for milk to the benefit of consumers but also to the benefit of milk product
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industries like cheese and yogurt and others that could sell more abroad as well and and but we
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don't sell anything abroad no one buys canadian cheese you know because raw milk is too expensive
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and so it's too expensive to export and certainly when i you know go to the store and buy cheese
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today it's just ridiculously priced now i mean a small block of cheese costing 14 when
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you know three four years ago it was like six or seven dollars and so i i think we have uh you know
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real it's a really perfect example that we do protection too and there's more industries and
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other examples of protection that that we give to various industries from import competition
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and so we can go on about you know we might beat our chest that we're wonderful free traders but
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we're not we are not free traders we like to protect our industries and it's become
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a philosophy now that we have to protect industries because because of what happened
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you know during the after china came in you know came you know came on after wto accession
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and you know it did hurt the heartland of many industrial countries although it did
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all that trade that happened with asia did lower consumer prices for people in north america
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and in europe but at the same time it also reduced income inequality because
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asian incomes went up quite a bit and international income inequality dropped all
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all after 2000 and of course we benefited from that chinese expansion and world expansion
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especially before the financial crisis in 2008,
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here we are. I mean, Mr. Trump has presented his threats, demands. But you know, it seems to me
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that we should have better control over our borders anyway. So why not make a virtue out
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of necessity and just do a deal with Trump? Is that what we're looking at? I think in the end,
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that's the best course of action. I mean, think about it. You know, one option is we do nothing,
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we retaliate well retaliation is not going to do anything for us in fact it's just going to hurt
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us too i mean may hurt the americans a bit but it's not going to help us uh in fact i read
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one editorial today in one of the canadian newspapers this morning and they're saying
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we should retaliate you know but that's that's not going to do anything we'll end up hurting
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ourselves with retaliation but as we're going to be probably hurting ourselves exporting into the
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u.s market so if you take that off the deal that doing nothing except retaliating then the other
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option is trying to make a deal and you know and and the main point is that we shouldn't i mean
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the biggest mistake that the federal government started with is trying to say oh this is a mexican
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problem this has nothing to do with canada but that's wrong there are things that we should be
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doing we should be uh we should be ensuring that our border is tighter and more secure
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we should be worried about potential terror threats coming through canada into united states
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it's not especially when you have we're the you know we're responsible for most of them being
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being apprehended in the united states so i think we need to worry about that and then in the case
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of fentanyl we have increased amount of production within canada fentanyl so again we we have a
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responsibility ourselves not only to the united states but also to ourselves in trying to reduce
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drug abuse and and the horrible deaths that have occurred with fentanyl it just seems a shocking
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thing that a u.s president has to dictate terms to a canadian prime minister and actually he's
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right it'd be better for all of us if we if we just did what he's suggesting yeah exactly
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it's been great to talk to you again and thank you so much for coming on the show we appreciate
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that i have a feeling we might be talking to you again quite soon if you're if you're available
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uh but meanwhile thanks and have a great day in toronto my pleasure nigel for the western