Canada can afford to wait out Trump’s trade war, say two prominent policy vets

Canada can afford to stick out its escalating trade fight with the United States rather than accept a bad deal since time may ultimately favour the country despite the economic imbalance, says former Canadian ambassador to the United States Frank McKenna.

“Time is on our side,” the former New Brunswick premier said. “It’s not good for investors. It’s not good for consumer confidence. But the wait is just as painful for the United States as it is for Canada. And Canadians have a high level of resolve.”

McKenna, deputy chair of TD Bank Financial Group, pointed to Canada’s fiscal position, higher revenues and continued investment as reasons the country has room to absorb more economic damage.

The trade fight escalated again Tuesday when Canadian counter-tariffs took effect on $27.6-billion worth of U.S. goods, matching the 50 per cent the U.S. tariffs levied last month. U.S. President Donald Trump responded by outlining plans to ban imports of certain Canadian alcohol, dairy and other products starting Sept. 29.

He also expanded the range of Canadian goods subject to the U.S.’s 50 per cent tariffs and directed that $50-billion worth of Canadian products be stripped from major U.S. government procurement contracts.

Paul Beaudry, a professor at the University of British Columbia’s Vancouver School of Economics and former deputy governor of the Bank of Canada, also said Canada can withstand a prolonged dispute, but the costs will be greater for the country because it depends far more heavily on trade with the U.S.

“It’s not like the economy is collapsing through these tariffs,” he said. “It’s kind of like a hard adjustment.”

Despite that imbalance, Beaudry does not believe giving ground is the better option.

“Waiting it out is, at this point, the right approach,” he said. “If someone’s trying to push you around, sometimes you just have to stand up to it.”

Beaudry said the tariffs are hitting industries such as autos, steel and aluminum the hardest, but those industries represent a relatively small share of the overall economy. For example, motor vehicle and parts manufacturing and primary metal manufacturing together account for roughly 1.5 per cent of the country’s economy, according to Statistics Canada.

But the longer the uncertainty persists, the greater the potential consequences for investment, particularly in the auto sector, he said, with some automakers already reconsidering or postponing investment plans in Canada.

Despite that uncertainty, McKenna said the substantive differences separating the two countries are relatively narrow and most trade remains uncontentious, he said, with autos emerging as the biggest unresolved economic issue.

The divide centres on how much auto production remains in Canada as the Trump administration pushes to shift more manufacturing to the U.S., while Canada seeks to preserve its share of the integrated North American industry.