U.S.-Canada trade ties permanently tainted, business leaders say
Tariffs have permanently tainted Canada-U.S. relations, according to several prominent Canadian business leaders, who say the country needs a new game plan for a changed world.
Regardless of how long the continental trade war launched by Donald Trump on Tuesday lasts, business leaders warn Canada’s economic ties to its southern neighbour will never look the same.
Executives are confident the country will eventually be able to diversify exports away from the U.S. and Ottawa can take steps to improve Canada’s global competitiveness, but that in the meantime Canadians are likely to suffer substantial economic pain.
Senior business leaders, such as veteran chief executive officers and board directors; current and former bank CEOs; retail sector and capital markets leaders; as well as executives who have served as provincial premiers, federal cabinet ministers, and a Canadian ambassador to the U.S. spoke to The Globe and Mail about tariffs and how Canada needs to respond.
Gord Nixon, a former CEO of Royal Bank of Canada who is currently chair of telecom giant BCE Inc.‘s board of directors and also sits on investment giant BlackRock Inc.’s board, said in an interview that “not a lot of companies are looking at making major investments in Canada right now” as a result of growing U.S. protectionism.
“Whether there is a cost advantage or an employment advantage or a tax advantage in Canada, it is not going to make up for protectionism,” Mr. Nixon said. “To some degree, unfortunately, we are already living with longer-term consequences from short-term decisions.”
Experts have repeatedly warned a North American trade war would raise consumer prices across the continent, though Frank McKenna believes Canadians can outlast Americans in that environment.
“Our pain threshold is way higher than America’s because we know what we’re fighting for and we’re united on that,” said Mr. McKenna, deputy chair of TD Securities and a former Canadian ambassador to the U.S. as well as premier of New Brunswick and a member of the Brookfield Corp. board of directors.
“In America, I think the pain threshold is extremely low, because the country is deeply divided and they have no idea why they’re in this mess.”
While consumer sentiment in the U.S. is starting to fall, our neighbours to the south are simply catching up to the psychology of Canadian consumers, said Greg Hicks, president and CEO of Canadian Tire Corp. Ltd.
“Consumer sentiment is already really low, lower than it is in the U.S.,” Mr. Hicks said, adding that the threats of a trade war reversed some early signs the retailer had been seeing of improvements in credit-card spending and consumer confidence in Canada.
“We just hope that this is more of a transitory period, and cooler heads prevail, and that this is a negotiation and we move on. … I was feeling like the economy was getting to a better place. And so we would hope to get back to that as soon as possible.”
Even before the tariffs officially took effect, RBC CEO Dave McKay told a conference on Tuesday, the looming threat of their arrival was already slowing business activity in Canada.
Peter Tertzakian, founder of Calgary-based think tank Studio.Energy and a member of the recently formed Prime Minister’s Council on Canada-U.S. Relations, said a recession is now looking very likely for Canada as the country faces a “long-term reset” of our U.S. economic relationship.
“To what extent we see a slowdown in the economy is up for debate, but there is no question that the combination of uncertainty and inevitably some rising prices is going to definitely be friction on the economy,” he said.
“We are not going back to where we were. Our friends are no longer the friends we thought they were.”
Louis Vachon, operating partner at private investment firm J.C. Flowers & Co. and former CEO of National Bank of Canada, said recession is a price Canadians should be willing to pay to win a trade war.
“I think our freedom is worth a recession,” Mr. Vachon said. “Long-term, well, clearly we cannot rely to the same extent that we did before on the U.S. for security and our economic prosperity. That’s it. So we need a game plan.”
That plan needs to include strategies for improving the investing environment at home, according to John McKenzie, CEO of Toronto Stock Exchange operator TMX Group Ltd. He said Ottawa needs to create tax incentives to encourage more investing in Canadian businesses, including by letting companies deduct 100 per cent of their capital investments and expanding the existing flow-through-share tax credit for mining companies to other sectors.
“This is about changing the economics of doing business in Canada,” Mr. McKenzie said. “We have to leapfrog so that our conditions are more competitive with the U.S. market.”
Key to Canada’s trade war strategy will be diversifying Canadian exports. And there, Mr. McKenna said, even changes on the margins will make a major difference.
“If we could move, I don’t know, 20 per cent of our oil to Asia, those marginal barrels set the price, then all of a sudden we create deal tension,” he said. “If we start moving more potash to external markets, or more uranium, that puts a lot of pressure on the Americans.”
There is also the possibility that those close to Mr. Trump are able to persuade him to simply back down, Mr. McKenna said.
“The band of billionaires that support him and other business leaders are going to realize that this is truly mad – by that I mean mutually assured destruction – and will start to pull him back from the ledge,” he said.
Mr. Vachon said declines in the U.S. stock market since the tariffs were implemented will also help foment opposition among Mr. Trump’s allies.
“As a Canadian, the best thing we can hope for is for the U.S. stock market to go down, down, down because that will increase the pressure on him,” he said.
Canada should also refuse to renegotiate the U.S.-Mexico-Canada Agreement (USMCA), which Mr. Trump struck in his first term, until the tariff threat is neutralized, said John Manley, former CEO of the Business Council of Canada who previously served as a federal cabinet minister and deputy prime minister.
“Our basic strategy from the past 35 years just went out the window. Now we need a new one.”
He said the United States “is no longer a reliable partner, not in security and not in business or trade.”
“There is no point in having a negotiation with somebody like that because you can’t expect them to live up to their commitments,” he said.
Ultimately, the impact of the tariffs themselves could be what forces Mr. Trump to reverse course.
“The big Achilles heel he has is inflation,” Mr. Nixon said. “You could have inflation at very high levels and his commitment to his base is that they are going to have lower prices. That is hard to do when you have 4- or 5-per-cent inflation.”
Mr. Nixon added Canada should not give up on the U.S. entirely, a point echoed by Mr. McKenna.
“We do need to leave the porch light on,” Mr. McKenna said. “When this is all over, America is not moving geographically. It’s still our neighbour, still our best friend. We are going to resume that relationship.”
With a report from Stefanie Marotta
This article was first reported by The Globe and Mail
