Trade strategy requires patience, but can we afford it?

(photo courtesy American Farm Bureau Federation)

Canada’s retaliatory tariffs against the United States — worth $16.6 billion — will clearly come at a cost, not only to the American economy, but also the Canadian economy. Despite the likely economic fallout from this trade spat, both sides in this dispute are talking about being disciplined and patient and trying to take a measured approach.

The more I hear political leaders preach patience in these seemingly early days of a trade war, the more it really scares me, and here’s why:

Last week, speaking in Fargo, North Dakota — a state where agriculture is a major economic driver — President Donald Trump urged the audience to be patient:

“We have things cooking now, you’re going to be so happy. But when people rush it, it’s like rushing the turkey out of the stove…The more they rush, the worse it’s going to be. The longer we take, the better. Your farmers, your people are going to be great.”

You will be hard-pressed to find a trade expert or economist that will support Trump’s notion that trade wars are easy to win. Quite the contrary, it is very easy for everyone to lose.

The intestinal fortitude of farmers on both sides of the border is being tested as they stomach commodity prices burning lower because of trade uncertainty. As usual, agriculture is used as a bargaining chip and farmers are feeling the loss in their pocket books.

“Patience is a virtue”

— William Langland, English poet, 1360

President Trump has said repeatedly that he is thinking long term, but the meaning of “long term” has not been laid out in any detail.

Farmers, on the other hand, are thinking about 2018 farm cash receipts and paying bills this winter.

The Canadian economy may not be able to afford this kind of patience, either, specially when you add Trump’s threat of a potential 25% tariff on auto exports to the U.S. on top of the steel and aluminum tariffs that have already been applied. This is a major concern for the Canadian economy in the face of rising interest rates and slower foreign investment. Canada cannot afford to be patient for long, and this is exactly what President Trump is betting on.

So far, Canada looks like it’s settling in as well for a long-term battle, as Canadian Foreign Affairs Minister Chrystia Freeland has said, talks will persist “for as long as it takes.”

With NAFTA in limbo and increasing tariffs with its major trading partner, the Canadian dollar, which is already under pressure, can not absorb any more than a limited amount of shock to the Canadian economy.

Steve Verhoul, Canada’s chief NAFTA negotiator, recently admitted that the Canadian and U.S. negotiators haven’t talked in weeks — additional evidence that Canada is trying to be patient (note: Freeland and U.S. Trade Representative Robert Lighthizer still talk frequently). If Canada was hoping to get back to the negotiating table after the Mexican election on July 1, President Trump has said he’s not in a hurry, and that he has no plans for NAFTA until after the U.S. mid-term elections this fall.

At the same time, we have the China-U.S. trade war unfolding. It’s a trade war of attrition — a knock-em-out, drag-em-out battle with the two largest economies in the world showcasing their economic power. There will be damage to the economies of both countries and countries like Canada are not immune from the shrapnel. It’s really a lose-lose scenario for potential long-term gain, but the longer this tit-for-tat tariff battle rages on, the longer it will take to repair the economic damage.

Keep in mind, Canada has more friends in Congress than Donald Trump does.

— David Frum, editor of the Atlantic, March 2017 on RealAgriculture

Throughout the NAFTA negotiating process, Canada has been banking on Congress to hold the President accountable on the Canada/U.S. relationship. But when it comes to NAFTA, the tarrifs, or jabs at Prime Minister Trudeau, Congress has been a timid mouse. Outside of Jeff Flake (R-AZ), Bob Corker (R-TN) and John Kasich (Governor of Ohio) (who are all retiring in the fall), the U.S. politicians on the right willing to speak up are few and far between. As talks drag on, this is becoming a major risk to Canada.

Patience is being requested from everybody on all sides. The question is, can our farms and economies afford that patience that we’re being asked to provide?

 

Shaun Haney

Shaun Haney is the founder of RealAgriculture.com. He creates content regularly and hosts RealAg Radio on Rural Radio 147 every weekday at 4PM est. @shaunhaney

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