An Inconvenient Truth

The American election is done; the votes counted, the outcome a fait de complete and the first serious Canadian casualty may be Kamloops.  In particular, as America begins building walls and retreating into isolationist type behaviours, there is a good chance it will have a serious impact on our forestry sector.

During the election, the trade protectionist hyperbole, exaggerating the benefits to workers in America’s Heartland, was a key part of Trump’s platform. However, some may have noticed the promises and embellishments neglected an inconvenient truth about tariffs and that truth is called trade wars.

There is a reason they call it war and it seems many ignore or simply don’t know what the consequences are. That inconvenient truth and what so many seem oblivious to, is the true retaliatory nature of tariffs.

Tariffs give this false hope to an electorate looking for change.  In the fervour of the election, the siren song of fulfilled expectations and dreams was dangerously simple.  It was the quick fix solution of simply denying foreign access to their domestic market.

What the electorate was not told is how false the economics and dreams really are.  We know from experience that a protectionist state, with its tariff walls in place, will be met by a similar retaliatory wall.  It escalates into a tit-for-tat tariff war between nations with the unintended consequence of denying America the ability to export their goods.  

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You just have to look at the Smoot-Hawley Tariff Bill of 1930, which introduced over 20,000 new tariffs on imported goods, to see where trade wars can take a country. It was called the Great Depression and America’s isolationism lasted to midway through Word War II.

Building economic walls means factories will not reopen and new ones will not be built.  Why?  Because other than a domestic market, there would be no one to export the manufactured goods to.  As a result, there will be no return to the good old days.  Industry and resulting industrial jobs need export markets to survive and tariffs and retaliatory tariffs can be the antichrist of export growth.

Denying China access to the 300 million plus American market will result in American manufacturers being shut out of China’s 1.4 billion market.  Both countries suffer but China’s domestic market of 1.4 billion people gives them the edge on economic survival.

According to Moody’s Analytics, an American imposed tariff structure targeting just Mexico and China would, if there was retaliation, result in 4 million American workers losing their jobs.  Another 3 million planned jobs wouldn’t happen.  Imagine how those numbers would grow if the EU joined the fray.

So why should we be worried or even concerned?  After all it’s happening in America, they elected their guys, it’s their President-elect, their problems and we should just ignore them.  

That point was emphasized when I was recently told by an American expat not to be so arrogant as to feel the need or the right to interfere in a sovereign nation’s business.  

All fine and well except that our sovereignty and theirs are legally bound together by this little thing called NAFTA.  It is our mutual self-interests and dependencies guide enshrined in a treaty and of concern to all 3 signatories.

Perhaps decades ago, the hands-off approach was the proper and respected way of dealing with nationhood.  However, in today’s world of globalization, common markets such as the EU and even corporate (treaty inspired) entanglements with sovereignty, national independence has become more complex and maybe even questionable.  

In Kamloops, for example, NAFTA is the treaty that covers our Softwood Lumber Agreement with the US and that agreement is about to expire.  If left unresolved, we stand to lose hundreds of regional mill jobs and perhaps some mills as well.  

It is classic opposing self-interests but with interdependencies that could impact the affordability of the American housing market while closing saw mills in Canada.

Right now, the Southern states, the prime American producer of domestic softwoods are telling their government that Canada is subsidizing production (Crown land and low stumpage) and dumping inexpensive wood in the American market.  They go on to demand the imposition of a tariff on our lumber exports to make our wood so expensive that no one in the States will buy it.  Good for their mills but bad for ours.

Given the South’s solid support of Republicans in last week’s election, it’s quite possible Congress, the Senate and their new President will agree with their southern supporters.  

Toss in the need for a quick demonstration of the promised get tough protectionist policy, mixed with a dash of ‘NAFTA needs renegotiation’ and we could see the imposition of that new tariff.

In response, Canada will have to retaliate by imposing a tariff on an equally valued American import. And that is how a trade war breaks out amongst friends with Kamloops and other forestry communities becoming the first casualties.

To Cathy McLeod’s credit, she is trying to voice our concerns in Ottawa but she seems to be the lone supportive political voice in our region.  Where are the rest of our political leaders these days?