Linda Hasenfratz is chief executive officer of Linamar Corp.
The United States has undertaken very aggressive tactics with respect to trade since Donald Trump became President.
The imposition of punitive duties on the United States' own industries and closest allies are hurting American business and will ultimately damage the global economy.
Just a year ago, the Trump administration imposed duties on Canadian softwood lumber, citing improper support of the industry in Canada. Prices of lumber rose dramatically to offset the high duties imposed, and U.S. consumers are now paying 20 per cent more for building supplies than they did a year ago. Whether Canada or the United States was right or wrong is a moot point: Americans are paying the price for this approach to resolving a disagreement.
Earlier this year, tariffs were imposed on steel and aluminum imported into the United States, with the administration citing security concerns as the basis for the action. There are 450,000 U.S. workers in metal producing industries but 4.5 million American workers in industries that use metal in their products.
There is not enough capacity of metal in the United States to fill the needs of American companies, and adding capacity is a considerable investment requiring considerable time, stretching into 2019 and beyond. Further, the country is at a 19-year low in unemployment, and labour shortages are rampant outside of specific regional pockets. My company has facilities in the United States and we struggle to find enough people there for our growing business. We have an excellent U.S. employee base, great levels of skill and an outstanding work ethic. There just aren’t enough workers to fill our needs as we bolster projects there.
What this means is U.S. industries, and subsequently American consumers, will pay more for related products. We are already hearing stories of American industry suffering thanks to these higher costs, or losing business thanks to retaliatory tariffs introduced by countries in response to the tariffs imposed on them.
Industries unable to absorb higher costs are again forced to pass them on to consumers, which ultimately reduces demand and will lead to the layoffs of U.S. workers. It also means less cash available to invest in new product development and innovation, key to growing business and supporting employment.
Of course, all of this would be massively exacerbated by the imposition of tariffs on autos and auto parts should Mr. Trump make that his next move, as is currently under consideration. With an average of seven border crossings per part in this integrated supply chain, the cost to be borne by industry players would be enormous, forcing a substantial price increase to consumers and a collapse of the auto industry rivalling that seen in 2009. This would almost certainly tip the economy into a major recession, or depression, and trigger massive layoffs in the United States.
Moving or resourcing parts from Canada to the United States to avoid tariffs is not a realistic mitigant to this action, because the time and cost required to move product to a new facility is prohibitive, as is the time, cost and recertification requirements to source new suppliers stateside. Where is the return on investment to move or to tool up a new supplier and go through months of recertification? It doesn’t exist – just billions of dollars out of pocket to find ourselves exactly where we are today in terms of sales and costs. There is no realistic way to mitigate the tariffs and avoid a recession.
The only way to avoid a recession, blame for which would be placed squarely on the shoulders of Mr. Trump, is to not impose additional tariffs, and to rescind those already imposed on metal before it is too late. We must stop playing these destructive games of protectionist trade policies and get back to building things collaboratively and innovatively together to boost all of our economies and keep our people employed.
I believe in fair trade but I also believe in facts and thinking through consequences, intended and unintended. Let’s focus on real facts of the levels of trade between our countries and ensure they are fair. We have a balance of trade between Canada and the United States, that is a fact and that is fair. Let’s deal with our disputes fairly and constructively, in a way that all of our citizens can benefit from without being arbitrarily penalized. We have a 200-year relationship of being allies, working together, inventing things together and prospering together; let’s build on that instead of tearing it apart.
Since signing the NAFTA agreement, U.S. GDP has increased 2.7 times or nearly US$12-trillion, GDP in Canada has increased 2.8 times or roughly US$1-trillion and GDP in Mexico has increased 1.9 times or roughly US$450-billion. The North American free-trade agreement has clearly benefited the United States the most; assertions to the contrary are simply not correct.
I have been told to not say these things publicly. That I or Linamar could be the subject of the next tweet and our reputation could be hurt as a result; that I am hurting the automotive industry by suggesting that tariffs will bring us down, and adding weight to our already weighed-down stock prices. But I say shame on those who aren’t speaking up: If we don’t paint a picture of what is coming down the pipe with these actions, then we don’t have a leg to stand on to complain when our economy collapses.
The good news is this is one recession that is entirely preventable.
We have spent months in conflict, arguing and penalizing each other. Breaking century-old ties. When has breaking a link ever made a chain stronger? We achieve so much more when we strengthen ties, when we link arms and approach problems together. We need to stop fighting and start solving. We need to finish the NAFTA discussions in a fair way and get back to trading with each other, not punishing each other. We need to get rid of recently imposed tariffs and not impose new ones.
Mr. Trump can stop this recession from coming by doing all of this quickly. Or, he can continue down this road and be remembered for all history as the instigator of The Great Trump Recession.