Tuesday, September 18, 2018

What Canada-US Trade Would Look Like if We Were Dealing With a Sane President

A recent analysis piece in TheWashington Post reveals that Canada is probably America's best trading partner.

Canada could even be called the United States’ best major trade partner. It’s the largest export market for U.S. goods, and the $4 trillion trade is by far the most balanced. The United States exports 94 cents’ worth of goods to Canada for each dollar of imports. In trade with the rest of the world, it’s only 62 cents.  
The pattern within U.S.-Canada trade in part reflects differences between the two countries. Although both have about the same area of land, Canada has only one-ninth the U.S. population, less than California’s. So while rich in natural resources to export as raw material exports, Canada doesn’t necessarily make the vast array of consumer goods, or the specialized machinery and equipment used to make many finished products, and those are more often imported.

...it’s the U.S. workers making machines, not consumer goods, who could suffer the most in the blowback from an auto tariff. The United States last year exported to Canada $79 billion worth of production equipment, including machines for farming, mining and manufacturing, as well as computer and telecom equipment. The trade surplus: $36 billion.

Consider the forklift and other material-moving equipment that is central to modern just-in-time delivery. That category alone last year generated a $1.6 billion trade surplus with Canada. “It’s a very important market for us,” said Brian Freehan, president of the Industrial Truck Association, which represents forklift manufacturers and their suppliers. He said that without the North American Free Trade Agreement, U.S. manufacturers would lose business, probably permanently, to countries outside North America.

That could affect workers across the country. Forklifts are sold in Canada, for example, with wheels from Wisconsin, forks from Ohio, a frame from Kentucky, transmission from Indiana, oil pump from Illinois, seats from Michigan, lift cylinders from North Carolina, a counterweight from Texas and a tilt cylinder from West Virginia. 
...A study from leading Canadian think tank C.D. Howe Institute found that under a 25 percent auto tariff, Canada could lose 60,000 jobs, a blow that could cause a regional recession centered in Ontario. But the study also found that the United States would lose twice as many jobs, more than 120,000. Although U.S. jobs directly related to autos would get a boost, those gains would be more than offset by job losses in sectors such as machinery, electronic and transport equipment, and other manufacturing. In other studies potential job losses in both the U.S. and Canada have ranged higher. 
For Trump to impose the 25 percent auto tariff, the U.S. Commerce Department must find that auto and parts imports threaten national security. It’s widely viewed as a negotiating tactic, a U.S. threat to Canada to get NAFTA concessions by the end of September. Auto and parts manufacturers and a wide variety of other interests told the Commerce Department that they opposed the tariff. 
“A car put together with American-made parts is not a national security threat,” Toyota spokesman Ed Lewis said.
What the article overlooks is that trade between Canada and the United States is not merely in goods but also in services and it is America's surplus on the services side that tips the overall balance in America's favour.

If Mad King Donald remains intractable and menacing, Ottawa might consider firing a shot across Washington's bow. Our armed forces need a replacement for the vintage and rapidly time expiring CF-18 fighters purchased by the previous Trudeau government. The American options are Lockheed or Boeing aircraft. Lockheed's offering is overpriced and underwhelming. Even the Pentagon now admits that stealth is more gimmick than war winning breakthrough. Boeing is offering an updated version of the F-18 but that same company almost maliciously went out of its way to screw Bombardier's C-series regional jet. What's good for Boeing's goose is good for the Canadian gander. What an auspicious moment for Canada to take a serious look at SAAB's latest iteration of its state of the art, affordable Gripen. Great way to get Washington's attention.


ffibs said...

Unfortunately we lost on the services exports when Harper decided to do the petrol dollar thing. The dollar went to par and we lost the three largest printers in Toronto. Not to mention all the other services web supplied to the US, including my own company.

Jay Farquharson said...

"Cohn, Woodward writes, “was convinced that trade deficits were irrelevant and could be a good thing, allowing Americans to buy cheaper goods.” He patiently explained to the president that his “Norman Rockwell view of America” — wherein the United States became wealthy by making steel, cars and other industrial products — was no longer true: “80 plus percent of our GDP is in the service sector.” People didn’t want to work in factories anymore servicing “2,000-degree blast furnaces” when they could “sit in a nice office with air conditioning and a desk.”

Cohn pointed out that the only time the trade deficit went down was in times of economic crisis, when Americans couldn’t afford to buy imported goods. “If you want our trade deficit to go down, we can make that happen,” Cohn exclaimed. “Let’s just blow up the economy!”

The Mound of Sound said...

That does seem to be one of the vagaries of a globalized economy, Willy.

Once you wrap your head around the reality that the global economy has already grown so far beyond the limits of the planet's ecosystem, our biosphere, globalization is not the Holy Grail that our leaders continue to believe it to be. In fact it's just the opposite.

My sense is that, within the coming decade, the 2020s, we'll see the existing system scrapped because it is so dysfunctional.

The Mound of Sound said...

Jay, the notion that deficits don't matter is an old American saw. Cheney told Bush Jr. that Reagan showed that deficits don't matter in order to persuade Bush to implement a second wave of tax cuts for the rich in the midst of government deficits and two overseas wars completely financed on foreign borrowings.

And that, kids, is what we call 'cognitive dissonance.' Defecits don't matter until they do - i.e. when it's time to cut entitlements for the proles.

Jay Farquharson said...

Cohn was talking about the trade deficits.

But their plan to permanently destroy the US Economy seems to be on track.