President Trump's trade report card

In a major foreign policy speech delivered in early June, Canadian Foreign Affairs Minister Chrystia Freeland defended global trade. At the same time, she observed that the culprit in what some see as a flawed system is actually “domestic policy that fails to appreciate that continued growth and political stability depend on domestic measures that share the wealth.”

Freeland was speaking not only to Canadians but also to Canadian exporters, most of whom are deeply concerned about the Canada-U.S. trading relationship. She went on to describe Canada as “a trading nation” that believes a trading relationship is not a zero-sum game, but a bond that benefits all parties.

“We look forward to working with our continental partners to modernize the North American Free Trade Agreement, and to making a great trading partnership even better,” she said, as her government begins its consultations on what Canadians want from a new NAFTA.

Her comments were clearly pointed at U.S. President Donald Trump’s brand of protectionism. And no wonder — there’s much at stake in the Canada-U.S. trading relationship. Canada is the largest market for U.S. exports of goods and services, accounting for 14.5 per cent of total U.S. export sales in 2016, with 32 U.S. states counting Canada as their number-one trading partner. Nine more place Canada second. Similarly, the United States is Canada’s top export market, with 72 per cent of our total exports of goods and services heading there in 2016.

In addition, U.S. businesses incorporate Canadian supply chains into their own production of export goods, to the tune of $60 billion per year on average. Many U.S. industries, including automotive, aerospace, agri-food, energy and ICT rely heavily on Canadian suppliers. Canadian exporters do the same when they produce goods with U.S. content. The United States is also the largest foreign investor in Canada, while Canada is among the top foreign investors south of the border. Millions of jobs in our two countries rely on the smooth flow of goods, services, capital and people across that long border.

In his first 100 days, Trump put Canadian policy makers on something resembling a rollercoaster. The United States announced a 20 per cent softwood lumber duty, unspecified threats to the Canadian dairy industry and a threatened (but later shelved) 35 per cent tax on auto imports. Trump’s pronouncements on trade and the threat of border restrictions have also emboldened U.S. companies to press for trade actions against Canada. In early June, for example, Boeing pushed the U.S. International Trade Commission to investigate Bombardier’s access to subsidies from the Canadian government.

To add to the confusion, Trump suggested the possibility of a 20 per cent border adjustment tax, but then didn’t include it in the White House budget plan. Finally, toward the end of his first 100 days in office, he signed plans to remove regulations around the U.S. banking and financial industry. This prompted speculation that he might repeal the Dodd-Frank Wall Street Reform and Consumer Protection Act, introduced by Barack Obama in 2010.

With that context established, here’s a summary of what Trump’s first 100 days have wrought in the area of the Canada-U.S. trade relationship, together with the possible effects on Canadian exporters and five tips on how companies can best respond to these risks.

Withdraw from the Trans-Pacific Partnership (TPP)

Identify and end foreign trading abuses

Lift federal restrictions on Keystone and Dakota Access pipeline projects

Renegotiate or withdraw from NAFTA

Bring in the End the Offshoring Act

1. Keep in touch:

Proactive dialogue between Canadian companies and their U.S. customers is essential. Getting out ahead of any expected policy changes will put your company in a better position to deal with them, if and when they come. Fully disclosing your plans — A, B and C — to customers in advance will mean no surprises for them should policies change.

2. Inform your customers about pitfalls:

It’s important to make sure that U.S. customers understand the downside to their business if Canadian supply is restricted. Most U.S. companies are already fully aware of this, but it doesn’t hurt to make sure. Also suggest that they point this out to their local and state politicians.

3. Supply chain check:

It’s a good idea to examine the supply chains into which you feed and figure out how you can adjust them to eliminate risks and costs at the border. Look at sources of supply and how goods are bought, sold, transported and stored (in terms of logistics). Look, too, at the movement of people and capital across the border. Some Canadian companies are looking at establishing U.S. affiliates.

4. Be creative:

Some U.S. retailers are encouraging Canadian companies to add U.S. value-adds to Canadian supplies in order to support Buy America.

5. Explore joint opportunities:

As part of a diversification strategy, consider collaborating with U.S. customers and partners on new business initiatives in the United States. You might also start looking at diversifying into non-U.S. markets, especially with the Comprehensive Economic and Trade Agreement with Europe soon to be in force, and in light of the growing demands of China and other emerging markets.