Trump’s judgments on prices may keep Canadian companies guessing
The concept of a “just price” is most prominently associated with the medieval Roman Catholic philosopher and theologian Thomas Aquinas.
Scholars have noted that St. Thomas was vague about precisely what the just price for any item is supposed to be, and, indeed, down through the centuries, religious scholars and philosophers have fruitlessly debated whether goods can have “true values” and, if so, how those values are determined. Eventually, the concept of a competitive price negotiated freely and without fraud or deceit between buyers and sellers displaced the concept of a just price as the benchmark for socially beneficial pricing in the marketplace.
President-elect Donald Trump is in the process of indirectly reviving the just price concept. Most recently, he criticized biopharmaceutical companies for getting away with murder in the prices that they charge for their drugs. Earlier in the post-election period, he chastised the Boeing Corporation for the proposed cost of a new presidential plane, as well as Lockheed Martin for the cost to the government of a new jet fighter airplane.
The senior managers of those two companies were quick to issue mea culpas and to promise that lower prices would be forthcoming.
Ironically, when it comes to imported goods, Trump’s concern seems to be that prices are too low, especially in the case of imports from China and Mexico. This concern presumably underlies his threat to impose tariffs on foreign imports or to implement a border adjustment tax as outlined in my last blog post.
In short, the incoming president appears ready and willing to judge the appropriateness of prices across a range of products, including those purchased not just by government but also by private-sector consumers. In this regard, it may be expected that the U.S. government will initiate new actions against softwood lumber imports from Canada, effectively on the grounds that softwood lumber prices are too low.
Clearly, President-elect Trump’s legal and extra-legal judgments on the appropriateness of specific free market prices will contribute to business uncertainty and, arguably, to pricing inefficiencies as managers try to guess what pricing agreements will seem justified in the view of a Trump administration. Canadian companies doing business in the U.S. will therefore confront additional complexity in their business dealings; namely, a U.S. president who believes he’s both obligated and competent to judge whether product prices are “justifiable.”
If the Canadian government has to renegotiate a free trade agreement with the United States, as seems increasingly likely, one area that might deserve particular attention on the part of Canadian negotiators is the bidding and purchasing policies of the U.S. government. It’s crucial for Canadian companies selling products to the U.S. government that the U.S. government follow codified bidding procedures that cannot and will not be subject to arbitrary disapproval by the executive office of that government.
Canadian negotiators should also bargain hard for clearer rules on what constitutes trade-distorting government subsidies, as well as stricter limits on when anti-dumping duties can be imposed.
Given the incoming president’s predilection for “rule by tweet,” Canadian negotiators will be mightily challenged to ensure that any new trade agreement with the U.S. is governed effectively by clearly written and consistently enforceable rules of behaviour. This was a major goal for Canada in previous trade negotiations, and it should remain so in any future negotiations.
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