Trump’s tariffs show Canadians have outsmarted Americans

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United States President Donald Trump believes his country’s trade deficit with Canada confirms that Canadians have somehow unfairly taken advantage of Americans. Apparently, Canadians have been smarter and out-traded our American counterparts. As a result, Trump feels that tariffs are imperative to level the playing field for American ignorance.

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In the past 50 years, U.S. government support of its agriculture sector has been unmatched and towered over other countries when accounting for all the subsidies, direct price supports and export enhancement. Don’t argue with a fool lest he seem wise in his own conceit, as my dad used to say.

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I worked in the Canadian grain industry for 30 years and it is based on international trade. I was chairman of the Canadian Grain and Oilseed Exporters Association for four years from 2017 to 2021. I’ve travelled to 36 countries on all continents. I’ve observed the implications of tariffs to the full extent. The U.S. tariffs on Canadian goods and services, resources and commodities will not end well for Americans. Tariffs are the woke of economics.

Throughout my travels, trading nations are the most prosperous nations. A simple Google search tells us that Canada has 15 trade agreements in force with 51 different countries. The U.S., on the other hand, has only 14 free trade agreements with 20 countries. Canada is a trading nation.

In my experience in the cattle industry and grain and oilseed sectors, Canadians are very professional in trade relations and have the highest respect from nations around the world. Countries would rather trade with Canada than the U.S.

Simple economics on comparative advantage stresses the importance of trade for a nation. Trading raises the standard of living and puts resources to use in the most efficient manner. More importantly, for the U.S. economic powerhouse, energy, electricity and resources are needed to run the machine at full capacity. Having these products at the lowest cost ensures not only higher profitability, but also enhances economic output. Tariffs reverse these efficiencies.

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Certain products that the U.S. imports have inelastic demand. Take beef and cattle. Energy demand is also somewhat inelastic. A small change in supply has a large influence on the price. People heat their homes regardless of the price. Trust me, I live in Winnipeg.

For commodities with inelastic demand, such as beef and energy, the U.S. consumer will shoulder the bulk of the cost of the tariff. If the demand curve is equal to the slope of the supply curve, the burden of tariffs is equally shared by the exporter and importing nation. If the demand curve is elastic or flat, the bulk of the burden is absorbed by the exporter. This is simple macroeconomics 101.

I was in Hong Kong in February 2007 when spring wheat prices were at historical highs visiting a flour miller. Wheat futures on the Minneapolis Grain Exchange reached more than US$20 per bushel. The flour mill was using Canadian hard red spring wheat, but it was purchased seven years earlier at lower prices.

The flour miller stated, “Jerry, we will buy wheat from you/Canada in two years. Don’t be like the arrogant Americans trying to sell us wheat at historical highs.” The Chinese gentleman said, “I knew more about trading at five years old than Americans trying to sell me wheat with their Ivy League educations.”

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Russia was a net importer of wheat when I started in the grain trade. In the early 1970s, the Soviet Union bought large volumes of wheat from the U.S. and other major exporters, including Canada. The U.S. sold large volumes of wheat on credit at subsidized prices. This caused food inflation in the U.S. It’s referred to as the Great Grain Robbery.

This was before my time, but an old-time trader once told me he was out for drinks with the Russians that had come to Canada. Upon their departure, they said they were going to hang the Americans and buy some wheat. The Canadian asked where they were going to get the rope to hang them. Don’t worry, the Russian said, “They’ll sell us the rope to hang them with the wheat.”

Wheat prices rose to historical highs (at the time), as the Russians cornered the world wheat market, and U.S. food prices sharply rose.

Something similar may be happening today. U.S. inflation will be back up to 10 per cent and the U.S. will be heading into a recession. Donald Trump, let me say these words to you: I and most Canadians would rather freeze to death than become an American or become the 51st state. I would rather spend 1,000 years in hell than become an American. You can put the tariffs in place, but Americans will be the ones to suffer the most.

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Most American imports from Canada have inelastic demand. In grade school, we learned that America has tried to take over Canada three times throughout history and failed every time. Canadian unity will be strengthened like we’ve never seen before.

Trump, you are ruining a relationship with your best friend and ally. Where is the Ronald Reagan mindset or Milton Friedman when you need them?

Jerry Klassen has been a commodity trader for 30 years. From 2010 to 2019, he was chief executive of Canadian operations for Swiss-based GAP SA Grains & Produits Ltd. He was chair of the Grain and Oilseed Exporters Association for four years from 2017 to 2021.

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