What former PM told insurers about responding to Trump tariffs

Politically, Canada had no choice but to slap a retaliatory tariff on U.S. President Donald Trump’s tariffs, even though economically it will only make the situation worse for Canadians, former prime minister Stephen Harper told Insurance Bureau of Canada’s Financial Affairs Symposium Thursday.

Trump announced a 25% tariff Tuesday on foreign-made cars exported to the U.S. That will stack on top of a previously applied 25% tariff on Canadian steel and aluminum.

Prime Minister Mark Carney responded Wednesday with a 25% tariff on all vehicles imported from the United States that are not compliant with the 2020 United States-Mexico-Canada Agreement (USMCA). Canada’s auto counter-tariff does not apply to the vehicle’s parts.

IBC president and CEO Celyeste Power asked Harper during the conference for his thoughts on how Canada should respond to Trump’s tariffs.

“There’s been retaliation announced by the government. I agree with that,” Harper told the symposium Thursday. “Whether it’s the exact right retaliation, I’m not sure. But you cannot not retaliate.

“I know there will be economists who say, correctly, that if you retaliate, it only kind of makes things worse for consumers. That is true.

“However, the fact of the matter is this, we’re in a trade war. And when you’re in a war, it is true that you shooting back only makes things worse. But if you don’t shoot back, you get slaughtered. So, you’ve got to shoot back. Do it responsibly, measured, and know what your objectives are.

“But the government has retaliated. And it must. We cannot have the one-way exit. If we do not retaliate on autos, there will be a one-way movement of the industry to the United States, period. And we can’t have that. We have got to preserve a part of the industry. We’ve got to give the industry some incentive to also stay here. So, I agree with retaliation.”

However, he added, counter-tariffs are not enough. Harper noted they must be followed up with a long-term strategy of better preparing Canada to export its goods and services to global markets. And Canada needs to make headway on knocking down inter-provincial trade restrictions and eliminating regulatory red tape.

Harper expressed doubts about a strategy to make long-term deals with Trump, who he observed seems steadfast in his ideological pursuit of tariffs and protectionism to advance U.S. economic interests.

“If I look at the parties in the election, both of them are proposing, I think, essentially to try and do a deal with Trump coming out of this,” Harper said. “They’re both saying in different ways: ‘Let’s accelerate the USMCA renegotiation. Let’s resolve these things, get a big deal on security and prosperity. And look, if I was in office, I’d probably be saying the same thing.

“Let me just be counted skeptical, though. Because, as I say, I don’t think Donald Trump necessarily wants a deal on some of these things. If he wanted free trade in autos, he wouldn’t be doing this. So, I’m skeptical that there’s a whole bunch of these issues where he actually wants a deal.”

Harper went on to say that Trump may not respect any deals that are made. “The other part of this….that’s disturbing is that we have a deal with Donald Trump. You know, the U.S. Mexico Canada trade agreement was, according to Donald Trump, the best trade agreement in human history that he negotiated and signed. So, he just ripped it up, right? Arbitrarily.

“So…if you’re going to do deals with Trump, my inclination would be to say you’re probably looking at more limited deals on a number of things. And you have to be sure that if you’re making a deal, the deal is such that it would be in his interest to maintain the deal. So, I’m skeptical of a big, broad package that resolves this.”

In related news: Trump tariffs auto, but spares Canada on reciprocal tariffs

And so, Canada needs a Plan B to deal with an unreliable trading partner, he said. Part of a longer-term approach would involve Canada diversifying its trading partnerships, so there is less of a concentration on exporting to U.S. markets. This would mean Canadian businesses need to think of themselves as bigger players on the international stage.

“This is the time to build more export-oriented infrastructure, not just pipelines, but build up the ports and the export terminals,” he said. “Create all kinds of ways of getting our resources out of the ground, and our products to international markets, in ways we’re not doing. I think there’s a lot of opportunity here.”

He noted many of the issues with inter-provincial trade are related to the presence of various jurisdictions of Canada’s provincial regulators. Interprovincial trade pacts are possible, he said, citing an example of such a pact between then B.C. premier Gordon Campbell and then Alberta premier Ralph Klein.  

Campbell and Klein signed the Alberta-British Columbia Trade, Investment, and Labour Mobility Agreement (TILMA) agreement in 2006. The agreement sought to “give businesses and workers in both provinces seamless access to a range of opportunities across all sectors including energy, transportation, labour mobility, business registration, and government procurement,” as a news release said at the time.

But there has to be a provincial will to get these pacts done, Harper said.

“When provinces say it’s tough, it’s not that tough,” he said. “This is the challenge you need to [address in] every one of your provinces, because almost all the premiers are out there now saying, ‘We need to break down interprovincial trade barriers.’”

However, breaking down provincial regulatory barriers is not easy, Harper said, citing his own government’s efforts to create a national securities regulator.

“Some of you may recall, one of the initiatives our government, the late Jim Flaherty, took was to try and create a Canadian securities regulator,” he said. “We had, I think, eight of the 13 provinces and territories on board. But you know, the truth was, the courts, over a long period of time, going way back…have been very generous and expansive in their definition of provincial powers. I think this is an area where it’s sadly mistaken.”