Canadians continue to cut Carney slack but employment numbers are bad and the car, steel, lumber and aluminum industries are all suffering. There has been some aid programs for those industries but so far the only thing that has protected Canada from worse results is the free trade agreements that expire in 2026. Even those agreements could collapse with tariffs in the new year.
In a speech a day after the Carney meeting, Howard Lutnick said not to expect an auto deal from Trump in a new trade agreement. He said Canada will give up all car manufacturing and might be left with auto parts. Lutnick, the Commerce Secretary, says this is a America First policy and Canada must accept it.
This speech to the Eurasia Group's Canada-U.S. Summit in Toronto. Lutnick made the speech via video call under Chatham House Rules which prevented media coverage. His speech though was confirmed by three sources that saw and heard it. While Trump is the final decider, the Lutnick speech was an indicator that CUSMA, the freed trade agreement, is likely not going to be renewed as it is now. It may not resemble anything like free trade. The U.S. want all of Canadian industry to locate south of the border.
Even as tariffs hurt U.S. businesses such as farming, Lutnick continues to push ahead. Soybeans, corn and beef have lost their Chinese markets. Crops are coming in there and there is no place to market them to. Moreover, the ending of USAID means the government is not buying either for food security. Headed into the 2026 mid-term elections, many farmer will be angry and it will be harder to blame the Democrats for it.
If Canada and Mexico lose auto manufacturing, it is likely the big U.S. auto builder like GM and Ford who will go bankrupt. And American car prices will jump even higher unless labour costs are slashed. It is likely every business affected in the U.S. is lobbying but it may come down to bankruptcies before anything resonates. This doesn't help Canada either but it is an indication of how policy is happening south of the border.
Lutnick and U.S. ambassador Pete Hoekstra are certainly abrasive. The gaslighting about how Canada's not travelling to the U.S. is an impediment to good relations is rich. The joking about the 51st state is brought up unbidden by Trump all the time. The reaction to the threat has caused Canadians to re-think the relationship with America. It seems that these Trump officials are shocked that there is deep feelings of betrayal in Canada. There is actual anger by them about how we changing our travel, shopping and other habits related to the U.S.
The premiers across the country are getting nervous and wonder what Canada has gotten from two meetings with Trump. Some are getting sick of making concessions and receiving nothing in return. Lutnick has said to expect it to be worse and even Canadian consumers choosing not to travel to the U.S. is regarded as a hostile act. Hoekstra has said the same. In short, they have said Canada is going to take it and like it. Or else. Some premiers are advocating for punching back.
Canada may be hoping that a legal challenge on tariffs winding it's way to the Supreme Court. There is no telling how the court will react. The justices surely know that giving the president unlimited powers that usually fell to Congress could be used by a future Democratic president in future years. That Republican majority court might rule against the permanent tariffs. Or they might support the tariffs. The House of Representatives might change to Democratic control and then tariff policy might be overturned there. The truth is 2026 is the mid-term elections and a lot can happen in the U.S.
Carney has to navigate the whole thing carefully. The retaliation tariffs except on sectoral areas like aluminum and steel have been reversed with no reciprocal response yet. If a deal on steel or aluminum is reached, it would be helpful. However, aluminum and steel could be of use in Canada if tin and aluminum drink cans are brought into production in Ontario and elsewhere. This alone could be a $3 billion re-patriation of production.
The 100% tariff on EV vehicles from China was a tandem response with the U.S. and to support our own EV industry. The response from China has been ever increasing tariffs on canola. Premier Wab Kinew has said those tariffs should end. The major problem is that the development of EVs in Canada might end and car production might accelerate in moving to U.S. Canada will be speaking to China this week so some progress might be made there. Pierre Poilievre, however, believes the Chinese vehicles are problematic because the tech can be monitored and controlled in China. The same argument can be made with Tesla and American control. While a legitimate concern, it is one that warrants a further discussion. The tariff imposed was mostly in regards to dumping product at below cost to kill competitors and then raise rates later. It might be better to extract concessions to build Chinese EVs in Canada.
Ultimately, if the U.S. goal is to end the auto industry in Canada, it frees Canada from having to buy anything produced in the U.S. at all. The Trump goal to bring manufacturing back to the U.S. and then export that product back to Canada is unlikely. Canada is likely to either build its own product or seek those products where it is less expensive and that won't be the U.S.
American trade issues with China alone are likely to bankrupt many farmers in the next years even with bailouts. Meanwhile, Canada is trying to come to some sort of agreement with India and China. The issue of Canadian sovereignty will matter in whatever discussions we have in regards to trade in the world. For many citizens, the issue will be housing, inflation and economy. Carney already is looking to get out of the weeds. A trade deal is necessary with the U.S. but a bad trade deal is worse than no deal at all. Spreading deals out around the world would be helpful.
Meanwhile, an election is possible is as early as a budget defeat November 4. The polls are very tight and for various reasons the opposition might be itching to go an election before 2026. Carney might be ready for an election too. While they might be ready, the public could react with hostility. Despite the unhappiness in Parliament, the parties might find some reason to vote for the budget or might sneakily have some MPs who don't show up on vote day. Donald Trump could be an issue long into next year. How the electorate responds to that might hurt or help certain parties.
One think is for certain that each time Howard Lutnick opens his mouth to say Canada is going to get hurt in the new trade relationship has Canadians look for other options in world partners.
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