All dishes on the lunch menu at La Cantine du Centre-Ville, a pop-up restaurant near Parliament Hill in Ottawa, are made from ingredients that annoy Donald Trump. The Mini-Quiche aux Trois Fromages uses Canadian eggs, milk, cheese and chicken "bacon"; the Galette de Saucisse de Dinde is made with turkey.
The Cantine pops up every year to publicize Canadian dairy, poultry and eggs, which are protected by import quotas and tariffs. This year's version was festive, with diners enjoying free food. But the people wearing "Ask me, I'm a farmer" T-shirts are worried. They fear that they will be the next casualties in the trade war that Trump is waging against U.S. allies. With good reason.
The 25 percent tariff that the United States slapped on steel, and the 10 percent levy on aluminum, apply to imports from Canada as well as from Mexico and Europe. Canada, like the others, will retaliate by raising tariffs on goods, like toilet paper and lawn mowers, made in regions that matter politically to Trump. The renegotiation that Trump demanded of the North American Free-Trade Agreement (NAFTA), which includes the United States, Mexico and Canada, drags on.
The economy is already suffering. To avoid more damage, Canada may have to stop coddling farmers.
Few economies are more vulnerable to Trump's onslaught than Canada's. Two-thirds of its trade is with its southern neighbor. The steel and aluminum tariffs affect industries that employ 30,000 Canadians. The C.D. Howe Institute, a think tank, predicts that the barriers will cost 6,000 jobs and reduce Canada's GDP by 0.11 percent. If Trump carries out his threat to impose a 25 percent tariff on cars the damage will be far greater. Canada's vehicle industry employs about 130,000 people and ships 85 percent of its wares to the U.S.
'We absolutely need them'
In the face of such threats the value of Canada's dollar has fallen from 80 cents in mid-April to 77 cents. Economists had expected business investment to take over as the main source of growth from spending by consumers, who have record levels of debt. But investors, unsure they will be able to continue exporting freely to the United States, are holding back. The central bank cited this as one reason it did not raise interest rates on May 30.
At first, Canada's Prime Minister Justin Trudeau had hoped to win leniency by charming the volatile U.S. president. That tactic failed in spectacular fashion after the G-7 summit in early June hosted by Trudeau in La Malbaie, Quebec. When Trudeau defended Canada's riposte to the steel and aluminum tariffs in a news conference at the end of the summit, Trump tweeted that he was "very dishonest & weak" and accused him of making "false statements."
Canada gamely argues that the United States would also be hurt in a trade war. Canada is the biggest destination for exports from 36 of the 50 U.S. states. Bilateral trade in goods and services is immense: $674 billion in 2017. It is also, despite what Trump said, balanced. In 2017 the United States had a small surplus with Canada, of $8.4 billion. Yet Trudeau's bargaining position is weak. "We absolutely need them, but they could live without us," said Philip Cross, an economist.
Trudeau must pick his battles. In the NAFTA negotiations Canada and Mexico are resisting a U.S. demand for a "sunset clause," which would require re-approval of the accord every five years and thus discourage long-term investment. Trudeau canceled a meeting with Trump last month because the Americans made acceptance of a sunset clause a precondition. Trudeau is also defending NAFTA's dispute-settlement rules while trying to roll back the steel and aluminum tariffs and forestall new ones on vehicles.
But to stop investment and jobs from moving south, "Canada is going to have to make some concessions," said Laura Dawson, head of the Canada Institute at the Woodrow Wilson Center in Washington. Among them might be raising the threshold at which Canada taxes purchases of U.S. goods from $20 Canadian to around $1,000 Canadian, the American level. Canada might consent to more onerous conditions for a vehicle to be imported duty-free within NAFTA, including on wages and the amount of North American content.
To appease Trump, Trudeau may have to pamper farmers less, which is politically perilous. Canada's system of supply management, which sets limits on the production of dairy, poultry and eggs, has long irritated the United States (and should anger Canadians, who pay more for food than they need to). Canada subjects imports of those products beyond a ceiling to punishing tariffs (298 percent in the case of butter). Trump has been angry about this since he met Wisconsin dairy farmers last year. When he repudiated by tweet the agreement with other G-7 countries he blamed in part Canada's "massive tariffs" on U.S. farmers. Pierre Lampron, head of the Dairy Farmers of Canada, said Trump is trying to wipe out Canadian farmers.
'Going to hit us all'
Canada points out that U.S. farm subsidies almost match its own. So far, such arguments have not moved Trump. Trudeau has indicated that Canada has "flexibility" on dairy, the biggest of the protected sectors. In negotiations with other trade partners, it has offered a bit more access to those sectors and compensated farmers. Canadian negotiators have reportedly offered similar concessions to the United States, which said they were insufficient.
Marcel Laviolette, an egg producer near Ottawa, expects Canada to concede more. Although most of the discussion has been about dairy, he fears that poultry and egg producers will also lose protection. "If that train goes by, it's going to hit us all," he said.
Trump's aggression has inspired rare unity in Canada. The House of Commons unanimously passed a motion backing Trudeau's decision to retaliate against steel and aluminum tariffs. Doug Ford, a populist newly elected to be Ontario's premier, said he stands shoulder-to-shoulder with him in defending jobs in the province. If Trudeau picks a fight with farmers to save the economy, however, this moment of unity will soon pass.
