Fundraising for Josh Hawley, who is taking on Senator Claire McCaskill in November Senate elections, President Donald Trump explained to prospective donors how he got in an argument with Prime Minister Justin Trudeau over US-Canadian trade figures. Trump claimed that the USA currently has an immense trade deficit with Canada amounting to $12 billion, but failed to mention that this figure refers only to trade deficit in goods. In this situation, it is crucial to underline that the trade agreement with Canada is composed of trade in goods, as well as trade in service. As portrayed by the US Trade Representative Office, the USA reported $24 billion in trade in services that, all things considered, resulted in $12 billion total trade surplus. On many occasions US representatives spoke openly about the importance of sustaining respectful relations with their northern neighbour. However, recent events show that these were just words.
According to the United States Census Bureau, Canada is one of the top US trading partners and false allegations about trade relations cause friction between the two countries and take toll on Canadian companies, currently facing risk of significant financial losses. Crude oil is one of America’s largest imports to Canada. With the discovery of oil fields in Texas, Canadian imports of this commodity rose from $318 million in 2012 to an astounding amount of $7.3 billion in 2014. If the USA were to impose limitations on oil import/export, oil prices will go up drastically. Also, Canada exports 90 per cent of its steel to the USA and plays a significant role in American aluminium industry. The newest US tax reform implemented on January 1, 2018 focuses on lower corporate rates, immediate expensing, limiting use of net operating losses and many other factors included in the final bill known as the Tax Cuts & Jobs Act (TCJA).
Over the years, the USA has been very competitive when it comes to taxation due to absence of federal consumption tax and a relatively small personal income tax. On the plus side, TCJA is expected to provide economic boost. However, experts now point out that Canadian companies may no longer be able to outbid US competition on the basis of tax advantages. Additional concern is high probability that Canadian companies such as FirstService, New Flyer Industries, Kinaxis, Winpak, Stantec and other businesses that have significant percentage of overall revenue shares in the USA may migrate their production and services down south. The bill ultimately shifts competitiveness paradigm in the North America, causing distress among Canadian business owners, already reflected in fluctuation on Canadian Stock Market. And the introduction of import tariffs as outlined in the amendments to the North American Free Trade Agreement can impact the interconnected US-Canada supply chain. On the top of that, the Financial Times reports that recent tax system changes may bring double taxation on some Canadian citizens, especially the ones who are dual citizens earning their income in Canada or who own real estate in the USA.
President Donald Trump does not stop on Canadian tariffs, though. Recent news about the threat of imposing 25 per cent tariffs and border tax on Chinese exports has made the world concerned about the future of international trade. And China’s speedy retaliation by targeting US auto, aviation and soybeans industries left global financial markets count their losses. All signs show that the international game of trades is just beginning.