Gordon L. Weil
Donald Trump conducts foreign policy by threats. If you don’t do as I demand, he implies, I
will simply take you over. Forget about pursuing
traditional diplomacy with friendly nations.
Bullying may work on real estate competitors in New York
City, where Trump gained his education in his father’s business, and the
volatile world of local commerce allowed him to crush competitors.
Real estate moguls may come and go, but sovereign nations
tend to hang on tenaciously. Look at
Ukraine. Still, you may dream of your
place in history by expanding American territory. Meanwhile, your diplomats can demand
concessions from others by warning them about the president’s unpredictability
if they don’t yield.
Trump’s threats may be false, but he uses intimidation as the
shortest path to getting what he wants. Beat
up Denmark about Greenland, Panama about its canal and Canada for its supposed
dependence on the U.S. Even if his real
goals are unknown, as the powerful leader of a powerful nation, he tries to pressure
friendly nations to bend to his will.
In one aspect of this approach, Trump seems to believe that
when one country sells more goods to another country, their margin represents a
subsidy – getting something for nothing.
In fact, each country gets paid
for its products. It looks like the
U.S. should always have a favorable trade balance with others and not “subsidize”
anybody.
That policy doesn’t account for trade in services and
cross-border investments. It also ignores the mutual benefits that can flow
from trade, but measures only money and even that only partially. It is virtually impossible for a country to
have a neutral or favorable trade balance all the time with everybody else.
Trump’s remedy is to boost the prices of imports by imposing
tariffs. If foreign suppliers want to
avoid being priced out of the market, they must swallow the tariff. Otherwise, when tariffs boost their prices in
the export market, domestic producers can raise both their prices and their sales. Either foreign producers’ incomes are cut or
American customers pay more or both.
Trump bullies Canada, which he claims without evidence that the
U.S. “subsidizes” by $100 billion a year. He threatens to raise tariffs on imports from
Canada to cut the subsidy, and force it to increase its military spending and
border controls.
Trump’s crude and insulting solution is that Canada should
become the 51st state. One Canadian
counters that Canada should absorb some U.S. states, including Maine.
Does the U.S. pay more to Canada than it receives?
In 2023, the U.S. bought about $64 billion more goods from
Canada than it sold there. Canada paid
$23 billion more for American services than flowed the other way. That left a U.S. trade deficit of $41 billion. But Canadian investment into the U.S. was $77
billion more than U.S. investment into Canada. (There’s no U.S. foreign aid to Canada.)
The net result was a favorable U.S. balance of payments with
Canada. Trump chooses to ignore the full
facts, the essential details showing there’s no $100 billion “subsidy.”
Canada’s vast territory provides a protective buffer for the
U.S., like the Atlantic and Pacific Oceans. But it needs to boost its military spending. Trump is right in saying it leans too much on
the U.S. And he has already succeeded in
inducing increased Canadian border protection.
To accomplish his objectives, Trump has alienated many
Canadians by devaluing their loyalty to their own country. You don’t have to be
American to think your country is great. By insulting a close ally and its
leaders, Trump may prevail on some current issues, while sacrificing a highly
valuable partnership for the long term.
If Trump raises tariffs on Canadian goods, Canada has plans
to retaliate dollar-for-dollar. A trade
war only leaves victims and no real winners.
It would harm the relationship for many years, reducing Canadian trust in
its “neighbour” (even their spelling is different). Trump dismisses cooperation to confront
China, their common adversary.
Does Trump really believe that Canada’s ten provinces would readily
join the U.S. as a single state, and that Canada would simply drop its own national
identity, foreign policy, health care system, gun control, and abortion law,
just to avoid high American tariffs or confrontation with him?
Trump’s policy of “America First” must inevitably turn into
“America Alone.” Canada would focus increasingly
on trade with other countries. The
European Union, which includes Denmark, might either build its own defense arrangements
or see the rise of anti-American nationalism in countries there, leaving the
U.S. with fewer reliable allies in either case.
Whatever may be gained by bullying rather than negotiating could
come at the loss of long-term trust among allies. That would be a high price to pay by the U.S.,
long after Trump’s “America First” has faded.
