This week it was revealed that the U.S. trade deficit in merchandise rose to its highest level in American history: US$891-billion. On the campaign trail in 2016 Donald Trump attacked Barack Obama’s deficit and said “It’s not going to happen any more folks.”
On the campaign trail, Mr. Trump promised he’d reduce the budget deficit. Instead, it has shot up. It’s due to hit US$1-trillion. He promised to reduce the national debt. Instead, it has risen as well.
The President is three for three. The big one, the one that really irks him, is the trade deficit. Mr. Trump once said that “trade wars are good, and easy to win.” Economists tried to tell him the opposite. He didn’t listen. The economists are being proven correct.
Washington is wondering how he will respond to the embarrassing new trade numbers, and Ottawa policy-makers are very keen to know as well.
They should be. The terrible trade deficit numbers could work in Canada’s favour on three pressing issues. One is the steel and aluminium tariffs which Mr. Trump imposed last year. A second is Ottawa’s relations with China, which are at one of their all-time lows. A third is the ratification of the new trade agreement, the USMCA.
The steel and aluminum tariffs were levied on Canada, Mexico, China and elsewhere to lower the trade deficit. How’s that going? In December, the U.S. goods and services deficit shot up 19 per cent from the previous month.
Given all the pressure Mr. Trump is under to remove the levies, the new deficit numbers should seal the deal. If logic prevails, he’ll remove them. The caveat, of course, is that Mr. Trump’s logic is not always the same as that of others. He could get his back up and double down on the levies. Or he could remove them and implement quotas in their place.
Mexico upped the pressure this week, warning it would not ratify the USMCA if the U.S. maintains the tariffs. Ottawa has delivered the same warning. Canadian ambassador to the U.S. David MacNaughton boldly predicted the tariffs would soon be lifted. A bill to ratify the trade deal will have to be tabled in Ottawa by mid-March in order to be passed in time for the summer recess.
The wild card is the question of an American trade deal with China. Larry Kudlow, Mr. Trump’s top economic adviser, says Canada and other countries need to show patience on outstanding questions because the President doesn’t want to be “flicking switches on and off” with other players while the China talks are ongoing.
Mr. Kudlow said Friday a deal with China could happen this month or next. It is expected to be modest in scope, like the USMCA deal. Canadian officials are very much pulling for an agreement because it holds out promise of solving the Canadian impasse with China.
As part of the deal, the U.S. might drop its case against Huawei’s chief financial officer, Meng Wanzhou. She was arrested by Canadian authorities and is facing fraud charges for alleged attempts to circumvent U.S. sanctions with Iran. Her legal fight against U.S. extradition began in Vancouver this week where she claimed the case against her is politically motivated. Mr. Trump has suggested the case might be used as a bargaining chip in the trade talks.
Ottawa has to hope it is. Not only have the Chinese detained two Canadian citizens in what is believed to be retribution for Ottawa having arrested Ms. Meng, the feud is now heavily impacting trade. China is denying a major Canadian exporter of canola access to its huge market. Canola is a vital crop in Canada, and China is the destination of about 40 per cent of exports.
Mr. Kudlow recently expressed deep gratitude for Canada’s cooperation on the Meng case. He sounds optimistic on a China deal, on steel and aluminum tariffs being lifted and on the USMCA being ratified.
It’s crunch time. If luck strikes and the right U.S.-China deal comes along, Canada could hit the trifecta. Resolution in respect to all three outstanding and vitally important issues.
The scenario is ideal, one which only optimists should hold to. But a return to normal relations with China and with the U.S. under the mad king are indeed possible.