Protectionism might work for U.S. President Donald Trump in the short term, but in the long term the American economy will suffer along with the rest of the world.
No one knows what policies Trump will actually enact, but his rhetoric is all about America first and the rest of the world be damned.
When you’re an economic powerhouse, you can throw your weight around and gain some concessions just by the threat of action. Some American companies have already repatriated investments planned for outside the United States to curry favour with the incoming administration.
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However, rhetoric and hollow threats will not by themselves change economic realities. The U.S. can import a lot of goods far cheaper than it can manufacture them.
The news service Reuters did an interesting story on Trump supporters attending the presidential inauguration. Many of them wore his now famous (or infamous) red cap emblazoned with the slogan “Make America Great Again.”
But many of those people hadn’t paid the $30 price to get a hat from Trump’s official campaign website. Instead, they bought knock-off hats from various stores and street vendors for around $20 and then were surprised to learn that they were manufactured in China, Vietnam and Bangladesh.
Most people buy whatever is convenient and cheap, and they seldom check where the product was grown or manufactured. Americans who might like the theory of putting America first probably assume no downside. In reality, protectionism is a double-edged sword. If you block cheaper imports, consumers pay more.
Trade isn’t a one-way street. Perhaps the Trump administration will be able to open up trade agreements and negotiate a better deal for America, but it will be a negotiation with give and take.
If Trump plays the role of bully in trade negotiations or if he enacts unilateral measures that are outside of agreements, there will be more losers than winners. For instance, the imposition of a trade barrier wall around the U.S. would lead other countries to take reciprocal action.
You can rail against cheap labour in countries that can manufacture less expensive red hats, and China certainly plays hardball when it comes to trade. However, a bully in the White House could lead to trade wars rather than more equitable trade.
Unfortunately, existing trade rules are difficult to enforce. Just look at how many years it took to exhaust all the appeals and get a ruling by the World Trade Organization against country-of-origin labelling.
Perhaps having the U.S. and China locked in a trade battle would open some temporary opportunities for Canada, but our products could also end up as collateral damage.
As for agricultural trade between Canada and the U.S., a continental market is critical for beef and pork and we also sell the Americans large quantities of grain, oilseeds and specialty crops. In turn, we buy large quantities of fruit, vegetables and processed products.
In addition to monitoring American trade actions, it will be important to watch what happens with the relative value of the American and Canadian dollars. A 75 cent loonie has shielded us from much of the big price decline in the major grains. All bets are off with Trump now at the helm.
