An editorial from the Halifax Chronicle Herald, published April 1:
The diplomatic term is mixed signals. The plainer one is confusion. Both fit the messages coming from Washington about how far the Trump administration and a Republican-controlled Congress want to go in renegotiating the North American Free Trade Agreement or in trying out protectionist gimmicks like the ‘border adjustment tax’.
In February, President Donald Trump told visiting Prime Minister Justin Trudeau that he expected only some “tweaking” of NAFTA would be needed in respect to trade with Canada, which typically runs small trade-in-goods surpluses with the U.S. when oil prices are high and deficits when they aren’t. But a draft of the administration’s NAFTA priorities sent to Congress this week takes aim at a lot of targets — more access to agriculture, financial services and telecoms markets, protecting U.S. government procurement and “levelling the playing field on taxes”, which some read as hinting at the threat of the radical border tax.
Most of this list is familiar from other negotiations with the U.S., including the original NAFTA. Along with including Canada in an executive order that authorizes an examination of why various countries have trade surpluses with the U.S., this is fairly typical of the tough talk administrations take to Congress when asking for “fast-track” negotiating authority that limits Congress to a yes or no vote on the negotiated result.
As for the trade deficits probe, when the U.S. runs deficits with Canada, it’s because of favoured access to Canadian oil, which Washington fought hard to get in NAFTA.
Meanwhile, Canada’s Natural Resources Minister Jim Carr came away from Washington this week with a rosy view on trade. After meeting with legislators, lobbyists and business executives, he said he found very little support, and strong opposition, to the border adjustment tax first floated by House Speaker Paul Ryan and toyed with, on and off, by Mr. Trump, a longtime protectionist.
If Mr. Carr is right, that’s good for Canada. The border adjustment tax — which is really three tax measures — would be an insidious way to attack imports of goods and components to the U.S. while subsidizing U.S. exports.
It would place a tax on imports that are either sold in the U.S. or used to produce goods for U.S. sale. It would not allow U.S. manufacturers to count the cost of imported components in calculating their taxable net income on domestic sales — thus artificially inflating their taxable earnings and tax bills if they used imported parts.
It would allow U.S. exporters to expense imported parts. And, most radically, it would exempt U.S. businesses from any income tax on export earnings, a huge subsidy.
None of this is compatable with America’s World Trade Organization treaty obligations. WTO defines prohibited subsidies as government financial (and fiscal) contributions (in this case, exempting export revenues from income tax and giving favoured tax treatment to domestic inputs) that benefit a specific group (here, exporters) in a way designed to boost sales abroad. U.S. trade partners would clearly have a treaty right to place countervailing duties on U.S. exports that received this prohibited subsidy.
So wise heads, as Mr. Carr suggests, may have concluded it’s self-defeating without needing a trade war to prove it.
Halifax Chronicle Herald, Halifax Chronicle-Herald
