AP

By Kevin Lynch and Paul Deegan

November 28, 2024

Canadian political leaders were caught flat-footed by President-elect Donald Trump’s warning that he would impose punitive tariffs on Canada and Mexico on day one of his presidency, citing our porous borders, which, he complains, have facilitated the movement of illegal immigrants and drugs into the United States. With his 25% tariff salvo, Trump has made it clear that he doesn’t distinguish Molson from Modelo.

We have to take the 25% tariff threat both seriously and literally from this exceedingly transactional president. The border is clearly an issue, as it was for the US after 9/11, and it is in our interest, both bilaterally and nationally, to significantly improve border security, which has not been a priority for the Trudeau government. To increase our leverage for a Canadian carve- out, we also need to address U.S. concerns about China accessing U.S markets through other countries including Canada, and deal with irritants such as aspects of supply management with respect to dairy and the Digital Services Tax. We can credibly advocate for North American sectoral strategies to enhance competitiveness by aligning with American concerns about advanced technology leakage to China. And we can work with the Trump Administration on a WTO reform agenda, including stripping China and India of their developing country WTO exemptions because of their size. On trade, the status quo is not an option, but we have to help design the alternative in our own national interest.

Just over a year ago, here in Policy, we warned, “Whether it is Biden, Trump, or someone else in the Oval Office in 2024, one thing is for certain: an America First stance will prevail. Since 2016, the US has walked away from its policy of opening up global markets in favour of defending American companies and workers who have seen manufacturing jobs disappear due to low-wage foreign competitors and technological change.” This called for, in our view, a redoubling of efforts to strengthen cross-border relationships in the public and private sectors and for some serious policy planning and scenario analysis.

The second coming of Donald Trump as president of the United States has only amplified these tensions and risks. Having won convincingly on November 5 – the Electoral College, the popular vote, the Senate, and the House – Trump 2.0 has a stronger mandate than he did in 2016, and he is now assembling a cabinet of America First disruptors to implement it. Given that Trump was written off by so many after January 6, 2021, his Lazarus-like return is a wake-up call that self-interest will be America’s only interest going forward, and Donald Trump’s definition of self-interest is not the national interest.

Looking back to 2016, Trump had spoken to “forgotten Americans” – those who globalization and technological change left behind and who experienced first-hand rising inequality in skills, income, and opportunity. These Americans wanted a more secure life in a world where they were losing their middle-class existence as manufacturing jobs were moving to China and more lately Mexico. Trump tapped into their despair and anxiety, channeled their rage, and offered them hope.

Fast forward to 2024, and those same Americans continued to face many of the same challenges, but now with higher prices at the gas pump, at the grocery store, for housing and mortgages, and just about everywhere else. While the Democrats were speaking about democracy and reproductive rights, Trump was talking about illegal immigration, inflation, and affordability. Ignoring the classic James Carville message “It’s the economy, stupid”, American elites didn’t see the Trump train coming.

With his 25% tariff salvo, Trump has made it clear that he doesn’t distinguish Molson from Modelo.

Now, we have to recognize that we are entering perhaps the most pivotal time in the entire postwar period. As the Trump announcement on tariffs made clear, it is not a business-as-usual world. What we need is a hurry-up offence when it comes to addressing issues of concern to the incoming Trump administration: seeking carve-outs where possible, alignment on global issues when it is in our national interest, and credible retaliatory responses if needed.

Defence: To the extent that the Trump administration may be using ‑ as some observers suggest ‑ the tariff threat to triangulate leverage not only on CUSMA but on Canada’s NATO spending, our days as a NATO deadbeat must end. Of the 32 NATO countries, only four spend less as a percentage of GDP than us. We are spending 1.37 per cent of GDP in 2024 according to NATO, and the gap to the target is not chump change: $18 billion. On the second NATO target, to spend at least 20 per cent of total defence spending on equipment, Canada stands at 18.6 per cent and only Belgium among NATO countries spends less. We have to accelerate the timetable to get our defence spending to two per cent of GDP, and we need to do it fast. “Trust us” is not a winning slogan with the U.S (or other NATO partners) on defence.

Border, Migrants and Drugs: To avoid a thicker border and to prevent a surge of asylum seekers from the U.S., we need to cooperate more closely with the Americans on controlling the two-way flow of migrants across the northern border. While the numbers are still small compared to the Southern border, the number of migrants trying to enter the United States via Canada has risen dramatically, with Border Patrol Agents in New York, Vermont, and New Hampshire alone apprehending more than 19,000 people from nearly 100 different countries during fiscal 2024. That’s more than the previous 17 fiscal years combined. While we cannot secure the entire border, we can police it better, particularly using drones and smart technologies as well as a greater police presence. We need to show the Americans that we are rigorous in the issuance of visas for countries from which there have been surges in migrants and asylum seekers, that we have effective screening of visitors, and that we have a policy-handle on what has become an out-of-control immigration system.

While the Southern border is a much larger entry point for illicit drugs, transnational criminal organizations and gangs transport significant amounts of high-potency marijuana, cocaine, and methamphetamine from Canada into the United States, using our ports as their entry point into North America. At the same time, cocaine is smuggled into Canada from the U.S. Related to the two-way drug trade is the smuggling of weapons and a host of financial crimes from the illicit proceeds from drug sales. We are going to have to show the Americans that we are tough on the drug trade and on money laundering. The fines and sanctions on TD’s US subsidiary suggest the American Justice department has serious concerns about the rigor of our regime.

Energy and climate change: Energy tariffs will be disruptive to Americans as well given the interconnected North American energy system. Indeed, the US energy industry would likely prefer more integration, not tariffs, including oil flowing from Alberta to Texas via Keystone XL. Cutting excessive regulations to speed up investment for energy and critical mineral projects would be beneficial on both sides of the border.

We have to be ready to push back against Trump bullying. Tariffs raise prices and hurt American consumers, and we need to broadcast this point with the help of allies in the US business community. We have to be prepared with selective, and politically painful, retaliatory tariffs. And, we have to be prepared to support export industries that are spuriously injured by American trade actions, both through legal challenges and with financial support.

Politically, the Trump election signals a larger realignment in the United States, where the Republican party is now squarely the Trump party. When it comes to Donald Trump, we cannot rely on nostalgia and our shared history to protect our interests. As we inch ever closer toward the next Canadian federal election, Canadians will have to ask themselves: who is best capable of resolving cross border irritants – which would give the transactional president a few quick “wins” – and cutting a long-term, and fair, trade deal with the Americans?

Kevin Lynch was Clerk of the Privy Council and vice chair of BMO Financial Group

Paul Deegan is CEO of Deegan Public Strategies and was an executive at BMO and CN