Corporate Canada wary of trade risks as Trudeau meets with Trump

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As he prepares to meet U.S. President Donald Trump in Washington Monday, Prime Minister Justin Trudeau is determined to head off U.S. protectionism.

But he is battling a host of possible threats, as Canadian businesses worry about NAFTA renegotiation, border-adjustment levies and Buy America regulations.

Given the early days for the new administration, the exact nature of the trade threat is unclear.

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Key Canadian industries such as oil and gas, auto, steel and agriculture all face potential challenges from an increasingly protectionist United States.

Mr. Trump wants to renegotiate the North American free-trade agreement.

But he has given little indication what that would mean for Canada-U.S. trade.

Ahead of Mr. Trudeau's visit, Canadian cabinet ministers and provincial officials have visited Washington and met with congressional leaders, lobbyists and Trump administration officials to drive home the vision of an integrated economy that serves people on both sides of the border.

Mr. Trudeau's task will be to persuade the President that the economies of the two countries are so closely integrated that any attack on Canadian imports will hurt American companies and workers, said Perrin Beatty, president of the Canadian Chamber of Commerce.

In Ottawa last week, Mr. Beatty played host to Tom Donohue, who heads the U.S. Chamber of Commerce, and the two business leaders met with Mr. Trudeau to express their support for a strong bilateral trading relationship.

"It's important for [Mr. Trudeau] to build a relationship with the new President and to ensure Canada is seen as a partner in solving problems as opposed to being a problem," Mr. Beatty said in an interview. "So that aspect of how they get along, whether they have an easy relationship, is going to be critical to what follows."

But he said Canadian leaders are also looking to engage U.S. allies — premiers with governors and members of Congress, mayors with mayors, and business leaders with their U.S. counterparts.

"We need them to talk about how it's in the American interest to maintain the most productive trading relationship on the face of the Earth," he said. "That's the most powerful leverage we have."

The steel industry points to Mr. Trump's executive order on the preference for U.S. steel in pipelines — one of his first actions as President – as an indication of the challenge that Mr. Trudeau faces as he works to protect Canadian economic interests.

Mr. Trump has clearly stated that his administration will pursue America First trade policies, and the executive order on steel did not include any special recognition for Canadian suppliers.

Another key risk is the border-adjustment measure being proposed by Republicans in the House of Representatives.

Canada would take a significant hit from a U.S. border tax — nearly one per cent of GDP — but the toll on the U.S. economy would be even greater, according to a C.D. Howe Institute study being released Tuesday.

"It is trade distorting and economically damaging to the United States and its trading partners," economists Dan Ciuriak and Jingliang Xiao conclude.

The authors say Canada is "heavily exposed" to the border-tax plan. That's because roughly three-quarters of Canadian exports are destined for the United States, with a heavy concentration of so-called "intermediate inputs" used in the supply chains of multinational companies – everything from auto parts to raw materials.

However, the estimated loss to U.S. gross domestic product would be 1.3 per cent because the border tax would drive consumer prices higher and make U.S. companies less globally competitive.

Mr. Beatty believes the import levy will not survive U.S. tax reform because Senate Republicans and Trump administration officials are cool to the idea.

"This is a Wal-Mart tax we're talking about," he said. "It drives up the costs of everything that blue-collar workers are buying in the United States and I don't see it being well-received by the President's base."

Canada was never a target of Mr. Trump's protectionist rhetoric during the campaign or since he has taken office. Although this country ran a $4.4-billion trade surplus with the United States in December, that was the result of the rising value of energy exports.

But while Canada has not been in the crosshairs, that does not mean it will escape protectionist measures that a Trump administration may adopt.

"I would really guard against complacency," said Laura Dawson, director of the Canada Institute at the Wilson Center in Washington. "It looks like Canada is doing everything right logically … but anything could happen. This is not a situation where you can follow the trail and it will inevitably lead you to a particular outcome."

With a report from Barrie McKenna in Ottawa