Putin, Sanctions, Canada and the G-7

Sending Russian intelligence operatives packing, back to Moscow, was necessary and important. Russian President Vladimir Putin’s regime crossed a red line with its use of a banned chemical agent in Britain. The West has to demonstrate collective sanction to deter this heinous form of assassination.

Russia is promising retaliation – tit-for-tat or some other form. The Putin modus operandi is to push until pushed back, so the West needs to plan its next moves.

As a first step, there should be agreement that no Western leader will attend Mr. Putin’s re-inauguration on May 7. Mr. Putin has made himself a pariah and should be treated as such.

As host of the G7 summit this June, Prime Minister Justin Trudeau should add managing the Putin regime to the agenda. The G7 needs to take the lead in a collective response and then encourage the rest of the West to follow.

But in considering further sanctions, the West needs to be smart. It must disapprove of the Putin regime but not the Russian people. What it should not do is withdraw its ambassadors in Moscow, nor send Russian ambassadors home. This old-fashioned tactic deprives leadership of our most experienced diplomats just when we need their advice and on-site perspective to avoid misunderstandings that can create dangerous escalation.

Nor should it sanction cultural, educational and scientific exchanges with the Russian people. These individuals are often critics of their own regime. We need to encourage them by showing them a better way, and exposure to life in our liberal democracies helps achieve this.

Similarly, cutting off access to our food and energy know-how leaves Mr. Putin and his kleptocratic entourage unscathed. But it does hurt the Russian people and gives Mr. Putin more ammunition to play on Russian insecurities. It also hurts Canadian farmers and the oil patch by denying them market opportunities when relations are normalized.

Smarter sanctions in a digital age would include those that target the pocketbooks of the kleptocrats, depriving them of a refuge for their ill-gotten gains. Ban them from entry to the West. And to really hit home, ban their wives and children from shopping, studying or working in the West.

Last year, Parliament adopted legislation – it passed unanimously in both the House of Commons and Senate – allowing travel bans and asset freezes on human rights abusers. Named after the Russian activist Sergei Magnitsky, who was beaten to death in 2009 in a Russian prison, it has already been applied against 52 human-rights violators in Russia, Venezuela and South Sudan. It’s a powerful weapon that should be applied judiciously but liberally. We should encourage all our allies to pass Magnitsky-style legislation.

We also need to better prepare for future threats. With support from the European Union and NATO, there are new centres of excellence related to hybrid threats in Helsinki, strategic communications in Latvia and cyberdefence in Estonia. All three deserve Canadian support. Recent revelations about the misuse of personal data make a compelling argument for the Canadian government to take up the Finnish invitation to join the Helsinki Center.

Canada should also rejoin the International Institute for Applied Systems Analysis (IIASA). Created in the aftermath of the Cuban missile crisis, it was an initiative of the Soviets and Americans to employ scientific co-operation to build bridges across the Cold War divide and to solve global problems. This Vienna-based organization does excellent work. The IIASA wants Canada back. As part of its recent recommitment to basic science, the government should respond favourably.

Mr. Putin has been renewed as President until 2024. Robert Gates, who served as defence secretary to presidents George W. Bush and Barack Obama, has a good read on the Russian President: “I had looked into Putin’s eyes and I saw a stone cold killer.”

Mr. Putin is trying to create a pro-Russia bloc of states of the former Soviet Union. He wants them tied economically and militarily to Russia. The invasions into Georgia, Moldavia and Ukraine, and the Syrian intervention, are all aimed at upending the post-Cold War rules-based order. Mr. Putin disregards borders and interferes in the election process of liberal democracies. He uses force – traditional, chemical and cyber – to settle revanchist scores.

The Putin problem needs readdressing by the G7 at Charlevoix, Que. As host, Canada must be strategic in offering ideas. There is more than enough global disarray without tumbling into a new Cold War.

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Trump, Trade Deficits and Trudeau

President Donald Trump repeated his controversial claim on Thursday that the U.S. has a trade deficit with Canada to swipe at Canadian Prime Minister Justin Trudeau, a day after boasting about attempting to bluff the Canadian leader on the subject.

“We do have a Trade Deficit with Canada, as we do with almost all countries (some of them massive),” Trump said on Twitter on Thursday morning. “P.M. Justin Trudeau of Canada, a very good guy, doesn’t like saying that Canada has a Surplus vs. the U.S. (negotiating), but they do…they almost all do…and that’s how I know!”

The Office of the U.S. Trade Representative says the U.S. in 2016 had a goods and services trade surplus with Canada of $12.5 billion. And Trump’s own 2018 economic report, which was released last month and signed by the president, also notes that the U.S. runs “a net bilateral surplus only with Canada and the United Kingdom.”

But Trump and his top trade official, USTR Robert Lighthizer, argue that official statistics understate the size of the U.S. trade deficit with Canada, as well as with Mexico, because the data doesn’t reflect the value of imports from China and other suppliers that first enter the U.S. and are then re-exported to one of the North American neighbors.

“You have a number of — $30, $40, $50 billion worth — of transshipments that have nothing to do with the U.S. economy,” Lighthizer told reporters in January of this year, at the end of a round of talks to renegotiate the North American Free Trade Agreement. “We end up having wrong numbers about Canada, wrong numbers about Mexico.”

The president’s early morning tweet came after he bragged to donors at a closed-door fundraiser in Missouri on Wednesday evening that he recently told Trudeau the U.S. had a trade deficit with Canada, even though he wasn’t sure of the details. He said the Canadian prime minister refuted his claim.

“I didn’t even know,” Trump said, according to audio obtained by POLITICO. “I just said, ‘You’re wrong.’”

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Trump also reportedly asked staff to check on Trudeau’s assertion that the U.S. does indeed have a trade surplus with Canada. He then said that the statistics don’t include energy and timber, “and when you do, we lose $17 billion a year,” he said. ‘It’s incredible.”

The White House defended Trump’s comments at a press briefing Thursday afternoon and appeared to embrace his formula, telling reporters that the data showing a surplus are “not complete.”

“The president was accurate because there is a trade deficit and that was the point he was making,” said White House presssSecretary Sarah Huckabee Sanders, adding: “There are plenty of things, once you take into the full account all of the trade between the two countries, that show that there actually is a deficit between those two.”

The latest back-and-forth over the deficit comes as the U.S. is negotiating with Canada and Mexico to modernize NAFTA, which took effect in 1994. Trump in recent weeks has repeatedly mentioned a U.S. trade deficit with Canada in the context of the NAFTA talks. “We have large trade deficits with Mexico and Canada,” he has said, using that to defend his argument that the agreement has been a “bad deal” for Americans.

But Canada’s Foreign Affairs Ministry, which is leading the NAFTA talks for Ottawa, brushed off Trump’s latest remarks.

“Canada and the United States have a balanced and mutually beneficial trading relationship. According to their own statistics, the U.S. runs a trade surplus with Canada,” Adam Austen, a foreign affairs spokesperson, said Thursday. “We are energetically at work modernizing and updating NAFTA to support good jobs and the middle class in Canada, the United States, and Mexico.”

Trump’s latest remarks are unlikely to have any significant effect on the ongoing talks, which are set to resume next month with another formal negotiating round, to be held outside Washington, D.C.

“I think people just look at this and say, ‘There he goes again,’” said Colin Robertson, a former Canadian diplomat who was part of the country’s original NAFTA negotiating team. “I think people think Trudeau has managed Trump well to the national interest. They know that you can’t insult him, because our prosperity depends on our ability to trade with the U.S.”

“So don’t get diverted,” Robertson added. “Don’t get fussed by this.”

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Trade Retaliation

Maple syrup from Vermont and perhaps California wine may be on Ottawa’s hit list in response to U.S. President Donald Trump’s proposed tariffs on steel and aluminum.

Lisa Rathke/The Associated Press

Canada will need to either bend or break international trade rules to take quick retaliatory action should the United States slap hefty tariffs on Canadian-made steel and aluminum, but experts say Ottawa has been forced into this position by an exceptionally protectionist White House.

Canadians should expect to pay more for iconic U.S.-produced goods if a trade war breaks out. Ottawa could slap import charges on goods from California wine to Vermont maple syrup – the sort of items that Canada has targeted in previous trade conflicts with Washington.

Canada has not released any lists of products – and the Trudeau government is staying mum on possible retaliation while it continues to seek an exemption from the Trump action. But experts suggest looking back at past trade spats with the United States – such as a 2014 dispute over meat labelling – to see what Canada has been prepared to hit.

Canada will be in good company in this trade fight, however, because more than 20 other countries or trading blocs will be taking similar countermeasures.

The European Union has already outlined a list of U.S. exports it would target after President Donald Trump said he will levy a tax of 25 per cent on imported steel and 10 per cent on aluminum.

U.S. President Donald Trump told a joint news conference that he still backs the idea of adding tariffs to steel and aluminum imports, linking them to a new NAFTA deal. Trump said he will straighten out trade in a “loving, loving” way.

Normally, Canada is supposed to seek retaliatory authority from the World Trade Organization to impose countermeasures on foreign countries but this process can take years. But, unlike past quarrels with the United States, Canada will be hard-pressed to act immediately – regardless of what the rules say.

“I don’t believe any countries affected by these tariffs will wait for WTO procedures to be completed before acting,” international trade lawyer Lawrence Herman said.

“Politics will drive this. Governments, including Canada, will be forced to respond immediately. That’s the dangerous precipice we’re facing, thanks to Mr. Trump.”

Colin Robertson, a former Canadian diplomat, writing in The Globe and Mail, says Canada and other countries threatened by the Trump tariffs should be drawing up a common list of U.S. exports that they could target with retaliatory action.

The EU has already warned it plans to target key Republican leaders with import taxes on items such as Kentucky bourbon – a product from the home state of Senate Majority Leader Mitch McConnell – as well as cranberries and dairy products from Wisconsin, home to House Speaker Paul Ryan.

Mr. Trump threw cold water on hopes for a Canadian exemption this week when he warned Canada would not be spared unless it agrees to U.S. demands for changes to the North American free-trade agreement – a series of protectionist U.S. requests that both Ottawa and Mexico City have characterized as unreasonable.

He said Tuesday that the tariffs will be applied in a “loving way.”

Mr. Ryan, the most powerful member of the U.S. House of Representatives, said the proposed tariffs are too broad and open the country to possible retaliation. Mr. Ryan named China, rather than Canada, as a problem.

The steel tariffs will be raised Wednesday at a meeting between auto industry leaders and officials in Prime Minister Justin Trudeau’s office, said Jerry Dias, president of Unifor, who will attend the meeting.

Auto industry executives sought the meeting to urge Mr. Trudeau to halt Canada’s participation in the Trans-Pacific Partnership trade agreement, which will eliminate Canada’s 6.1 per cent tariff on vehicles imported from Japan.

One U.S. trade expert estimates the annual cost to Canada of the steel and aluminum tariffs could be US$3.2-billion. Chad Bown, a trade adviser to former president Barack Obama, wrote in an article for the Peterson Insitute for International Economics that this amount would be roughly what Canada could justifiably expect to seek compensation for in retaliatory action against the United States.

Former Canadian government officials have said it’s very difficult to pick retaliatory targets. In 2005, when Canada was angry at a U.S. law that funnelled cash collected from tariffs on foreign goods to U.S. companies, Ottawa drew up a list that targeted the states where U.S. politicians voted for the legislation. In that case, Ottawa was forced to abandon some retaliatory targets – such as U.S. motorboats – because of push-back from Canadian industry. Its final list was narrowed down to a few items, such as tropical fish.

Laura Dawson, director of the Canada Institute at the Wilson Center in Washington, said Canada’s best bet to head off the tariffs may be to wait for the U.S. system of checks and balances to run its course, including a likely court challenge of steel tariffs by companies that buy steel.

“People are already talking about how court challenges will be launched, what would the courts be asked to adjudicate; would they be asked to adjudicate what constitutes a national security threat?” Ms. Dawson said.

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Trump Trade Threats

For Canada, Trump times are trying times. In spite of constant provocation, the team around Prime Minister Justin Trudeau’s team has successfully avoided making our policy differences personal. This is the right approach.

The latest ‘Trumplosion’ links the threatened new tariffs on steel and aluminum to renegotiating a “new and fair NAFTA agreement.” Delivered in one of the President’s now-trademark early morning tweets, it is straight out of Donald Trump’s playbook.

The Trumplosions are a distraction to the NAFTA negotiators. They remind us why we need a fair dispute-settlement chapter as insurance of secure access to our largest market.

Getting an exemption from the tariffs means redoubling our advocacy efforts in the United States. To our mantra about Canadian trade sustaining nine million American jobs, we now need to add that Canada is the biggest market for U.S. steel, taking half of U.S. steel exports. That Canada is the largest foreign supplier of both steel and aluminum to the U.S. only underlines our role as a trusted and reliable ally. And, as the President’s own 2018 Economic Report points out, the U.S. enjoys a trade surplus with Canada.

The multipronged Team Canada approach both in and beyond the Washington beltway is working. Ministers and premiers consistently reach out to their counterparts. Federal and provincial legislators work both sides of the aisle on Capitol Hill and in the statehouses. Business and labour engage customers and suppliers.

As a result, we have identified many more American allies than we thought. The dividend from all this activity is the significant number of U.S. legislators now making the case for a Canadian exemption.

The North American free-trade agreement, a leper in U.S. political circles for most of the last 24 years, is finding champions in the United States. The farm community, the auto industry and most business is now telling the Trump administration to “do no harm” to NAFTA.

But the problem, as Foreign Minister Chrystia Freeland recognizes, is that the Trump team approaches trade negotiations as a “zero sum” game. They are mercantilists and the growing U.S. trade deficit only strengthens their protectionist instincts.

The fate of the tariffs and NAFTA is ultimately an American debate.

The 140,000 jobs in the steel industry face continuing pressure not because of foreign competition but because of automation and robotics. The jobs are not coming back. The Trump administration owes these workers retraining and adjustment assistance.

There are 6.5 million jobs that depend on the steel imports. These are the jobs that Mr. Trump should be supporting. They will suffer if tariffs are imposed. It is “straight up stupid,” says Peterson Institute’s Adam Posen, “…you mess up your entire trading system.”

Mr. Trump is wrong on one thing. No one wins a trade war. Using national security as a protectionist cloak to impose tariffs risks unhinging the global trading order. It will backfire on the Trump administration.

Canadians are feeling the impact as the threat of tariffs disrupts our markets, our currency and potential investment. Bank of Canada Governor Stephen Poloz warns that the redirection of investment towards the U.S. will only increase. The Trump tax reforms will only accelerate this flight. Finance Minister Bill Morneau needs to rethink how to sustain Canada’s competitiveness.

Global overcapacity in steel production is testing the global trading system. Both the Organization for Economic Co-operation and Development (OECD) and International Monetary Fund (IMF) have identified the problem – Chinese overcapacity. A useful Canadian initiative would be to bring together China and the U.S., and our fellow U.S. steel suppliers – Brazil, E.U., Mexico, and South Korea – to see what we can work out.

With our fellow targets of the Trump tariffs, we should also draw up a common retaliatory list. By jointly and very publicly threatening to target products such as California wine, Canada and Mexico persuaded Congress to rescind the pernicious country-of-origin labelling requirements.

The tariff threat reminds Canadians that the Trump challenge – an impulsive, unpredictable president who thrives on chaos – requires constant vigilance. We will get through the latest Trumplosion because of our co-ordinated advocacy and careful diplomacy.

Even before being elected Prime Minister, Mr. Trudeau recognized the wisdom of Brian Mulroney’s axiom that the most important relationship for every Canadian prime minister is that with the U.S. president. Like it or not, Mr. Trudeau must continue to work diligently on his relationship with Mr. Trump, including the late-night telephone calls.

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