Trump’s fulsome attack on free trade and the dangers for Canada

In the wake of Donald Trump’s angry, vividly anti-free trade inaugural address, world leaders are already girding themselves for a global trade war they pray never happens. Canada has tried to set a neutral, albeit pro-free trade tone—attacking no one yet open to everyone--but wars are often not kind to neutrals.

Comments from world capitals carry clear threats.

•  German Vice-Chancellor Sigmar Gabriel said Germany and the European Union must be ready “to defend our interests.”

•  Mexican president Enrique Peña Nieto warned: “Sovereignty, national interest and protection of Mexicans, will guide relations with the new government of the United States.”

•  The Chinese Communist Party’s newspaper, the Global Times, said “Undoubtedly the Trump administration will be igniting many ‘fires’ on its front door and around the world. Let’s wait and see when it will be China’s turn.”

Trump’s inaugural address was a fulsome attack on free trade. A couple sentences capture the free-trade anger as he speaks of the “American carnage” caused by trade. “The wealth of our middle class has been ripped from their homes and then redistributed across the entire world… Protection will lead to great prosperity and strength.”

That is false. A trade war harms all, as history shows, and “protects” no one. The greatest danger is a repeat of the trade war launched by the United States in 1930 with a huge escalation of tariffs. It deepened and lengthened the world depression by causing a “trade collapse” and paved the way for the economic devastation that ultimately contributed to the outbreak of world war.

While trade battles are a huge negative, trade brings great advantages. Just a couple U.S.-based examples for the president’s consideration.

Americans, particularly the poor, benefit hugely from the inexpensive imported goods such as textiles. Throwing up trade would force many families into poverty. Economic malaise metastasizes behind trade barriers. For example, in much of the post-World War II period, the U.S. auto industry had an effective oligopoly on U.S. sales. Comfortable behind trade barriers, management and unions—with exorbitant wages and efficiency-killing work rules—got fat and lazy. Quality plummeted and prices soared.

The U.S. (and Canada) became lands of over-priced clunkers hot off the assembly line. With trade, quality began to improve and prices became competitive though the U.S. auto industry, as its recent crisis showed, failed to shake off fully the comfortable complacency that trade barriers had bestowed on it. Trade barriers leave lasting scars.

U.S. industries, cocooned behind Trumpian trade barriers, would leave the economy fragile and U.S. consumers facing overpriced, poor-quality goods and services. Pampered and protected U.S. companies could easily slip into “third world” quality, just as the auto industry did.

Canada is a bright spot in the world response. The Trudeau government has repeatedly noted the benefits of free trade and has launched a lobbying campaign in the U.S. to bring home this message.

The danger is great. Trump plans to renegotiate NAFTA and has threatened punitive tariffs, with automotive imports being a prime target. Many were heartened that “Canada” seldom if ever appeared in Trump’s anti-trade rhetoric, but that has changed. Last week, Trump spokesman Sean Spicer said tariffs will be imposed “when a company that’s in the U.S. moves to a place, whether it’s Canada or Mexico or any other country seeking to put U.S. workers at a disadvantage.”

Such protectionism would be a disaster for Canada. The Canadian market is just too small to support an efficient automotive industry—and that goes for just about all of our high-valued added industries. But the disaster would be much broader as trade barriers fly up and global economies sink down.