Canada not to worry ought to make us bigly, yugely worried

Extrait de: The Don sending his consigliere to tell Canada not to worry ought to make us bigly, yugely worried, William Watson, Financial Post, January 26, 2017 8:23 AM ET

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Lyle Aspinall/Postmedia NetworkStephen Schwarzman, a Donald Trump advisor, speaks with media at the Fairmont Palliser in Calgary, Alta., on Monday, Jan. 23, 2017. He was attending the Liberal federal government's cabinet retreat.

Somehow Stephen Schwarzman’s reassurance that Canada shouldn’t be “enormously worried” about Donald Trump’s NAFTA agenda leaves me, well, enormously worried. Schwarzman is the CEO of the Blackstone Group and head of Trump’s Strategic and Policy Forum, 19 high-profile CEOs who are advising the president on productivity and growth. In Calgary Monday, he told reporters gathered outside the Liberal cabinet retreat (not an auspicious word that — retreat — given the context) that “Canada is held in very high regard… I think trade between the U.S. and Canada is really very much in balance and is a model for the way that trade relations should be…”

Mr. Schwarzman seems a nice man, but to me it was a lot like a mafia consigliere coming to town to tell the local franchisees that the Boss likes them, he really likes them. In a world of Boss and consigliere, that kind of reassurance is never really reassuring. Yeah, sure, Da Boss likes us. But what says he can’t change his mind? This new Boss, in particular, seems not so cemented in his beliefs (cemented being a good mafia word.) Today he likes us, tomorrow maybe he decides we’re scumbags, like the media.

Even if you discount the subtext — a tough-guy Boss contemplating major hits sending a messenger to tell you not to worry, you’re OK — what about the substance of what Mr. Schwarzman said? From now on, it seems, model trade is trade that’s balanced. To repeat: “Trade between the U.S. and Canada is really very much in balance and is a model for the way that trade relations should be…” Ergo, when trade’s not balanced, that’s a problem we’re going to do something about.

Trouble is, trade doesn’t work like that. Reasonably free trade doesn’t, at least. Take Canada, for example. In 2015, the last year for which complete data are available, our merchandise trade balance was minus $23 billion overall, i.e., it was a deficit. But despite the overall deficit, we had a $34-billion surplus with the U.S., an $8-billion surplus with the U.K., a $1.6-billion surplus with India and assorted surpluses with six other countries that summed to $2.3 billion. At one and the same time, we had deficits of $17 billion with China, $11 billion with both Germany and Mexico, $4 billion with Switzerland — Switzerland! — and a total of another $15.5 billion in deficits with 14 other countries.

Trade’s like that. For the globe as a whole, it all cancels out. Or at least it’s supposed to cancel out. Because of accounting errors — and it’s not easy keeping track of all trade flows between all countries — it looks like Earth runs a trade surplus. With Mars, I guess. Or the moon. 

Given this worldwide web of surpluses and deficits in 200 countries’ trade accounts, how could we possibly run our trade policy so that every flow balanced, even if for some reason we thought that was a good idea?

We have a big surplus with the U.K. but a big deficit with Germany. How would we reduce both? We could put export tariffs or physical quotas on what we send the Brits. Or we could let them tax or ration imports from us. We could do the reverse with the Germans. Or at least we could once Britain’s out of Europe. While it’s still in, the EU can’t have different border rules for one member country and not another.

Canada gets reassured Da Boss likes us. But what says he can’t change his mind?

But world trade is like the Michelin Man: squeeze it here and it bulges there. (It is, as we economists say, a complex general equilibrium system.) Suppose we worked on all our non-zero trade balances, introducing micro-level trade frictions to cut this flow or boost that one. Suppose in the end that eliminated our overall deficit. What would that do to the dollar? Probably boost it. And what would that do to the trade deficits we’d just got rid of? Probably bring them back, since a higher dollar would make our goods less competitive.

It might be nice if we had a separate loonie for every country we trade with that could adjust up or down as a surplus or deficit required. But of course there’s only one loonie. Even if it adjusted to produce balance overall, how could it produce balance on all our accounts at the same time?

A trade regime in which governments are not generally hands-off but are required instead to intervene at a micro level to adjust trade flows up or down on a country-by-country basis? Making their trading partners offers they can’t refuse? Conducting stick-ups at their borders? Operating on their Dons’ whims (in the U.S., literally on Don’s whims)?

If you’re not enormously worried — bigly, yugely, fantastically worried — you haven’t been paying attention.