It has certainly been a busy past week here in Canada. It would seem that our elected officials are all springing to the microphone trying to figure out ways to avoid the colossus from the South. Of course, what I’m referring to is a social media statement made last week by the President-elect talking about imposing 25% tariffs on everything from Mexico and Canada post his inauguration. In many ways it seemed like our worst fears are possibly coming to fruition.
As Canadians it’s pretty normal to think about the United States constantly. For instance, The United States is the destination of choice for many Canadians to go on vacation but of course it is also the destination for most of our trade. In past simpler times, maybe we took it a bit for granted. However, clearly those days are over, and it makes no sense whatsoever.
Canadians think about Americans constantly, but it is almost the opposite in the United States. For instance, Americans don’t think of Canada much at all. From a Canadian perspective that can represent ignorance, but you can also make an argument that is not fair at all. Simply put, our American friends take us for granted maybe a little bit more than we take them. Unfortunately, at times it creates a vacuum where bad things happen between two great trading partners. It certainly seems that this might be one of those times.
Canadian farmers from Newfoundland to British Columbia are certainly considering their options especially when the new administration get sworn in on January the 20th. Nothing can be taken for granted any more.
Having said that, it all seemed so easy so many years ago. I can remember loading soybeans and shipping them to Kentucky. Now, I just wrote that and if you think about that intuitively it doesn’t make much sense. Why is an American buyer sending trucks up from the United States to take my soybeans to Kentucky? In Kentucky not only are there soybeans everywhere but Kentucky is a lot closer to American states that have millions of bushels of soybeans. Why were my soybeans so special that they were shipped to Kentucky?
Ditto for almost every other situation in Canada where we are shipping some type of agricultural commodities to the United States. In this case, it was about 25 years ago when I did this. At the time I thought that there must be some weird economics going on. It didn’t make a lot of sense to me but at the end of the day I got paid. I was satisfied with what I was paid. At the end of the day there was an economic opportunity that made sense for everybody. That meant that Phil Shaw’s soybeans landed in Kentucky because it made the most agricultural economic sense.
In retrospect, it might have been an agricultural economic anomaly. However, if you multiply it all across The US Canadian border this week you can see how much trouble we are in. After January 20th there could be a possibility of a 25% tariff on all goods entering the United States. That means that my soybeans shipped 25 years ago would face a tariff of 25% going in. It’s likely they wouldn’t go in just like a lot of Canadian trade under this scenario. The buyer in Kentucky would not be happy and I wouldn’t be as well.
We’re talking real money here. For instance, the agricultural trade between the United States and Canada is huge, with each being its largest trading partner. If you think about my soybeans going to Kentucky versus a calf that is born in Montana fed in Alberta, sold back into United States and then resold back into Alberta to fatten up how is that supposed to work under this new scenario? It is the same thing for western Canadian grain that slips across the border into North Dakota and Minnesota. A 25% tariff will dry that up very quickly. Heads will be turning every which way.
Leave agriculture aside for a minute and you can just imagine the effect of a 25% tariff on every auto part traded in Ontario and Quebec into the United States as well as our big energy exports into the United States. Clearly, on this side of the border emotions are very high. There’s been lots of bluster and a few phone calls amid the din of disinformation and misinformation created by the social media post. However, it came from who will be the most powerful man in the world.
If it comes to this, it’s going to be bad. There will also be retaliatory tariffs from Canada and Mexico and China. The latter was threatened with 10% tariffs. That likely means Chinese tariffs put back on American soybeans. We have seen this movie before.
So don’t be surprised from what may happen. We have been told what’s going to happen. It is always a challenge for any Canadian Prime Minister living on top of the country that is the most powerful on earth. It’s always been that way throughout our Canadian history. At the end of the day, every Canadian prime minister knows the free trade between the United States and Canada is whatever the Americans deem it to be. Remember USMCA or CUSMA. It is what it is, fairness is in the ether.