We’re close to the point of maximum distress over U.S. President Donald Trump’s assault on the Canadian economy.
We know that Trump is likely to get Prime Minister Mark Carney’s signature on a trade deal we won’t like, maybe worse than we’ve braced for.
Yet our economy should be fine.
We stand to lose more jobs than we already have in the sectors that Trump has most heavily pummelled — autos, steel and aluminum.
But between them, Ottawa and the provinces will keep laid-off workers whole, as the feds did with their pandemic relief cheques.
And as a practical matter, the U.S. doesn’t have a lot of alternatives to the aluminum it obtains from Canada, to pick one example of Canadian exports on which the U.S. relies. Canadian aluminum accounts for roughly half of consumption in the U.S., which doesn’t have enough smelting capacity to meet its own needs.
Even in these fraught times, a division of Britain’s Rio Tinto PLC, which owns the former Alcan Aluminum, is reported this month to be upgrading its facilities in Quebec.
Rio Tinto and its investment partners in the expansion project are betting $1.5 billion that they can export even more aluminum to the U.S.
One of two things will result from Trump’s 50 per cent tariff on aluminum imports. One: Americans will keep buying Canadian aluminum at the higher price Trump is imposing on them. Two: The U.S. will shut down large parts of its defence, auto and aircraft industries, which rely on Canadian aluminum. So does Budweiser, which packages its products in aluminum cans. And so on.
Which option do you think they’ll choose?
Americans face the same choice of higher prices or supply shortages in Canadian petroleum products; nickel, potash, zinc and uranium; durum wheat; hydroelectricity; and forest products. There’s more, but you get the point.
In confronting a U.S. housing crisis, Trump is trying to free up federal land for new housing and pressuring U.S. producers to build more sawmills. But that will take time.
So, for a year or two, the U.S. will keep buying Canadian softwood lumber, even if it means paying the 34.5 per cent tariff Trump is expected to impose on it later this year (up from a current 14.4 per cent).
Speaking of housing, Carney might prove to be one of the greatest overseers of Canadian economic stimulus since the Second World War.
Carney’s vow to double annual Canadian housing construction to 500,000 units through to the end of the decade will be a tremendous, sustained boost to the economy.
So will the Liberals’ $9-billion increase in defence spending this year alone.
The financial pages are filled with reports of Canadian businesses large and small gearing up to fill a multitude of orders for armoured personnel carriers, reconnaissance electronics gear, and munitions.
Carney is shifting military procurement, which will amount to tens of billions of dollars over the next few years, away from U.S. firms to Canadian suppliers.
And what the Department of National Defence can’t source at home, it will buy from our reliable allies in Europe and Asia Pacific, avoiding U.S. suppliers whenever possible.
And the European Union (EU) is keen to buy military supplies from Canada to reduce its own reliance on the U.S.
When Trump announced his plans for tariffs on about 100 countries and a few uninhabited islands in April, a Canadian recession seemed certain.
But for the reasons above, the Canadian economy is now expected to keep growing this year, albeit at a slower pace than it would without the Trump menace.
RBC Economics forecasts 1.3 per cent Canadian GDP growth this year, about the same as last year. RBC expects unemployment to rise to a peak of 7.1 per cent in the third quarter, a slight increase from the current seven per cent.
That growth forecast doesn’t include the full impact of federal stimulus. We don’t yet know which of Carney’s “nation-building” projects will get the green light, just that they will keep the economy humming.
And it doesn’t account for the removal of interprovincial trade barriers, a process now underway, that University of Calgary economist Trevor Tombe estimates could add as much as $200 billion per year to the Canadian economy.
In a report last week, the Canada Mortgage and Housing Corp. (CMHC) said removing those barriers could increase housing supply by almost 280,000 units.
Trump can’t touch any of that. Nor can he touch the nearly 80 per cent of the goods and services produced in Canada entirely for Canadian consumption.
That includes health-care services, education, public transit, telecommunications, banking, construction, and air and rail transport. And hair salons, which are counted among the hundreds of thousands of non-exporting small businesses that make up the largest portion of the economy.
Trump is becoming incidental as Canada rebuilds and builds up.
