We know by now that Donald Trump’s bonnet has a very large number of bees. Several of his unshakeable beliefs relate to economics and all of them are highly dubious. One is that budget deficits are bad (unless they are caused by tax cuts for the wealthy) and another is that any trade deficit with any country is bad. He also seems to think that there is close relationship between the two. He also seems to believe that if any country has a trade surplus with the US, it must be because they are indulging in unfair trade practices such as currency manipulation, or providing subsidies for their domestic manufacturers and producers so that they can undercut the prices of US producers, or they are imposing tariffs to make US goods more expensive.
It is not that all of these beliefs are flat-out wrong. Every country, including the US, indulges in some of these practices some of the time for some of their products. It is that Trump thinks that any country that has a trade surplus with the US can only achieve that using deeply crooked means and is ‘taking advantage’ of the US. His way of trying to rectify things is to impose tariffs on a range of imported goods and he seems to think that these tariffs are paid for by the countries from whom we are importing goods. This may be the source of his belief that by imposing tariffs, we will not only change trade deficits into surpluses, those countries will be contributing to reducing the budget deficit. This is obviously not the case. The cost of the tariffs will be paid by US consumers.
He seems particularly irked by Canada, with him and his advisors using extremely strong language denigrating the US’s longstanding ally.
On Fox News Sunday, White House Director of Trade Policy Peter Navarro also defended the president with adversarial language.
“There’s a special place in hell for any foreign leader that engages in bad faith diplomacy with President Donald J. Trump and then tries to stab him in the back on the way out the door,” Navarro said. “And that’s what bad faith Justin Trudeau did with that stunt press conference. That’s what weak, dishonest Justin Trudeau did. And that comes right from Air Force One.”
“Fair Trade is now to be called Fool Trade if it is not Reciprocal,” [Trump] tweeted. “According to a Canada release, they make almost 100 Billion Dollars in Trade with U.S. (guess they were bragging and got caught!). Minimum is 17B. Tax Dairy from us at 270%. Then Justin acts hurt when called out!”
Did you notice Trump’s reference to Canadian dairy products? That particular item seem to really get Trump’s goat and he refers to it constantly when talking about trade with Canada. John Barber explains why Canadian milk infuriates Trump.
Whatever understanding Canada and the US may (or may not) have come to on their high-value trade in lumber or auto parts, they remain implacably opposed on the comparatively minor matter of milk.
Trump has attacked Canada’s protected dairy industry before, calling it a “disgrace” and blaming it for widespread hardship among US farmers. Although the entire trade in dairy products between the two countries is worth less than US$600m, ideological division has sharpened the ongoing dispute. His negotiators have demanded the dismantlement of Canada’s openly dirigiste system of supply management in agriculture – a complicated nexus of production quotas and import tariffs designed to ensure Canadian dairy, egg and poultry farmers receive fair prices for their products.
But the Canadians are no less determined to retain one of the last vestiges of their otherwise-abandoned collectivist traditions. Canadian cows are sacred, and the farmers who care for them enjoy outsized influence in national politics. Expert observers have said that Justin Trudeau’s government would abandon the treaty altogether before sacrificing supply management.
Meanwhile, just across the St Lawrence river in what free-trading Americans like to call Soviet Canuckistan, the dairy industry is thriving like never before – and like none other in the developed world. Family farms milking an average of 80 cows each have prospered under a heavily regulated system that supports prices at sustainable levels by restricting domestic overproduction and keeping imports at bay. In 2016, Canadian farmers received an average price of C$0.79 a litre for milk, compared with C$0.49 on average for US farmers.
The result is that dairying remains a key economic support of traditional rural life throughout central Canada. As critics of the system like to point out, hoping to inspire resentment among consumers annoyed by the price of milk, Canadian dairy farmers enjoy incomes 60% above average in the country. But to supporters, the uniquely prosperous, protected Canadian dairy industry stands as a model alternative to the increasingly disruptive and unpopular dynamic of unrestricted free trade in all things.
Domestic critics have called supply management a grotesque distortion of free-market principles, complaining that the comparatively high price of Canadian milk sacrifices the interests of consumers in favour of producers and victimizes the poor. But no consumer or social policy group has taken up the cause, and all six parties currently represented in the House of Commons unanimously support supply management.
As do Canadian consumers: an Ipsos poll this year by the Dairy Farmers of Canada reported that 75% of Canadians support even greater government efforts to defend the industry in the face of current US demands.
Every country has certain manufacturers and industries that it sees as either emblematic of the nation (like Harley Davidson for the US) or whose health is correlated with the health of the economy in general (like the auto industry for the US) and goes out of its way to protect, and the US is no exception. In addition, sugar, wheat, and beef producers also enjoy outsize influence in the US. For Canada, dairy products are their thing. As long as the list of products for each country is not too extensive, those are taken as part of the game
John Oliver devoted the main part of his show on Sunday to look at the facts about trade.