A month ago, a Wisconsin member of Congress named Ron Kind came out of a briefing with U.S. Trade Representative Robert Lighthizer and said he was taken aback.
Mr. Lighthizer, the man in charge of U.S. trade negotiations, including NAFTA talks, was "inordinately fixed" on the relative size of the U.S. economy compared with others, Mr. Kind said: "Since we're the biggest dog on the block, everyone should just succumb to all our wishes."
This is the essence of the Trump administration trade policy, as we now see it in action: The United States has the larger economy, so it will get what it wants.
That was the essence of a Donald Trump tweet on Monday. The President made a clear threat: The steep U.S. tariffs on steel and aluminum will apply to Canada (and Mexico) unless the latter two make concessions to wrap up talks on the North American free-trade agreement.
Now we know the bottom line of this trade strategy: I'm bigger, so give me your lunch money.
Canada-U.S. relations have always had a hint of that size mismatch, but it was softened by neighbourly feeling. Mr. Trump made U.S. leverage an explicit part of his global trade policy, but it primarily named China and Mexico. Now it is an explicit part of U.S. trade relations with Canada, in the form of a naked threat.
And Mr. Trump is right: The United States can hurt Canada's economy. It's just that Mr. Trump is still likely to hurt the U.S. economy in the process.
It is interesting that Mr. Trump's trade rhetoric was once heavily focused on China, but he has not yet followed through on the aggressive trade measures he proposed. It's as if he has realized the United States is not that much bigger than China. Those steel tariffs hit countries such as Canada and Britain instead.
Mr. Trump's trade policy is supposed to be aimed at undoing U.S. trade deficits, so that explained why he aimed his rhetoric at China and Mexico, with whom the United States has large trade deficits. But now the U.S. President is tweeting that his country not only has a trade deficit with Canada, but it is a large one – although that is false.
It's hard to know if Mr. Trump actually believes that, but there can be no doubt that Mr. Lighthizer, who regularly makes the same claim, knows better. Numbers posted on his own website made it clear the United States has a trade surplus with Canada. He's a veteran trade lawyer, a pro in the field. Why make stuff up? It does not do much other than add some fake justification for squeezing the smaller guy.
There's no point whining about that. Mr. Trump promised "America First," and this is what it means. He thinks of trade as a zero-sum game – if you export more, and import less, you win! He also frames the issue in emotional terms of American humiliation. Foreign countries "laugh at us," he tweeted. He promises to shut them up.
Trade economics tells us that, in theory, a larger country can reap benefits from imposing a tariff on a product from a smaller country. The harm to the smaller country is greater than the benefit to the bigger country – but if the bigger country doesn't care, then no problem.
But obviously there is a problem if the smaller country happens to be your biggest export customer. When Canada's economy suffers, so do U.S. exports to this country. The economic harm to Canada would be greater, but the United States would be hurt too. And in the meantime, U.S. manufacturers will have to pay more for steel and aluminum. That makes Mr. Trump's Canada threat a less-than-zero-sum game.
Of course, it could be a Trumpian tactic in NAFTA talks – although the problem is that no viable NAFTA deal is on the table right now. And inside the United States, powerful interests, including Republican leaders, are trying to get Mr. Trump to pull back.
If not, Canada must sort out what to do when the bigger guy threatens – as will other countries. They usually feel they have to respond, even if it hurts them, to stop it from happening again.
That's what happened in 1930, when the U.S. Congress passed the protectionist Smoot-Hawley Act; Canada and countries around the world retaliated. Trade slowed. That is widely seen as contributing to the Great Depression. That is the danger when the big dog decides to use its power by threatening a trade war – it makes everyone else feel they have to fight a war of attrition.