Opinion by Roger-Luc Chayer (Image : AI / Gay Globe)
I am not an economist, but as a journalist, I have been a privileged observer of current affairs for 34 years, and I am very well informed about economic affairs between Canada and the United States, hence my editorial opinion today.
We all know, and it is common knowledge: Donald Trump does not know much about international economics or geography, and this is producing the results we see today, with hundreds of measures that have the effect of hindering the movement of currencies and trade.
But when someone is deficient in such important areas, people around him need to step forward, even privately, to help the president better understand the issues before making decisions that will hurt historic partners like Canada, but even worse, the American people, who will witness, because of the implementation of the new tariffs since last Saturday, massive inflation, since most American imports come from Canada and this will cost them much more to build their homes, drink their can of beer, or build their airplanes.
This is what someone close to Donald Trump should explain to him.
If Canada has an economy so integrated with that of the United States, and I include Mexico alongside Canada, it is because we are essential suppliers of the raw materials that the American giant needs to compete with Asia and Europe. Here in Canada, we have natural resources that all countries envy, but above all, we have the ability to exploit these resources, which are easily accessible.
One of the advantages the United States had in doing business with Canada — and once again, Donald Trump was not made to understand this — is that the Canadian currency is approximately 35% lower than that of the United States. What does that mean? It means that if an American company buys a ton of steel for $100 from an American company, it pays approximately $65 for that same ton in Canada, which allows it not only to save money by buying more, but also to pass on the savings thus achieved to its customers. This company thereby improves its competitiveness.
By adding a 50% tariff to Canadian steel, the company pays 50% more than the initial price. It then loses its competitive advantage and has to pass the bill on to its American customers. Therefore: inflation!
Why did the United States benefit from doing business with Canada?
The advantage for the United States did not simply rest on the fact that the Canadian dollar was cheaper. It was based above all on a combination of factors that made trade with Canada extremely advantageous for American businesses and consumers.
1. Essential, nearby and reliable raw materials
Canada supplies the United States with large quantities of oil, natural gas, electricity, uranium, potash, lumber, metals and critical minerals. Energy trade is particularly important: the two countries are major energy suppliers to one another, thanks to cross-border infrastructure already in place.
This is a huge advantage for the United States: rather than depending on suppliers located thousands of miles away, a significant portion of its strategic resources comes from a stable neighbor, accessible by pipelines, railways, roads and electrical grids.
2. Integrated production chains
This is probably the most important argument. An automobile, an airplane or a machine manufactured in the United States may contain components manufactured in Canada, then return to the United States to be assembled or processed. The product may cross the border several times before it is completed.
Canada is therefore not simply a “foreign supplier”: it is part of the American production chain.
This is particularly evident in automobiles, steel, aluminum and aerospace. The American and Canadian governments have also long presented the integration of supply chains as a factor that helps improve North American competitiveness.
3. Transportation costs
Buying Canadian oil, Quebec steel or Canadian aluminum is very different from buying the same products from a country located in Asia.
Geographical proximity means less transportation, fewer delays and fewer logistical risks.
This is particularly important for heavy and bulky raw materials. Transporting steel or oil over long distances can quickly increase the final price.
4. A stable and predictable supplier
The United States also benefited from an enormous strategic advantage: Canada is a political, economic and military ally.
For an American company, purchasing a raw material from Canada generally involves far fewer geopolitical risks than depending on a supplier located in a politically unstable region or in a country with which Washington has difficult relations.
Canada is also subject to the same major North American trade frameworks, which greatly facilitates trade.
The lower Canadian dollar: the argument about the Canadian dollar is relevant.
When the Canadian dollar is worth less than the U.S. dollar, an American buyer holding U.S. dollars can generally purchase more Canadian goods for the same amount in U.S. dollars, all other things being equal.
But listen, Mr. Trump, the United States did not buy from Canada out of charity. It did so because it served its own economic interests. Bilateral trade was advantageous because Americans obtained essential resources, nearby, at competitive prices, with highly integrated supply chains and relatively low geopolitical risk.
And that is precisely why tariffs can be counterproductive: they do not only hurt “Canadians.” They also increase the cost of inputs for American companies that use these Canadian products. The Bank of Canada has already observed that U.S. restrictions have significantly reduced Canadian steel exports, for example.
Furthermore, today’s news perfectly illustrates this problem: American threats targeting Canadian automobiles, parts and steel are also worrying the American auto industry, precisely because production chains are deeply integrated.
Someone should take the president of the United States in their arms, gently rock him, give him a warm broth and explain to him, with drawings if necessary, that it is his own country that will suffer the greatest losses. But good luck getting there…
PUBLICITÉ
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