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Canada has already picked a losing strategy for Trump’s trade war

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12.07.2018

With a newly elected left-wing Mexican president, a tariff war in full swing, and hopes fading for the ongoing NAFTA negotiations, it’s time to remind ourselves of economic and strategic issues related to free trade.

Retaliation against President Donald Trump’s tariffs is ultimately a failing strategy, especially for small countries like Canada. We might feel better defending ourselves with reciprocal tariffs, but the result is shooting ourselves in the foot.

First, let’s remember that while Canada might be the world’s 10th-largest economy, we still only account for less than two per cent of world GDP. We have little influence on world prices for anything except the one or two commodities where we control major market share, such as potash or uranium.

That means any tariff we impose hurts us without hurting others. Higher import prices increase costs to Canadian businesses and consumers. But foreign producers still enjoy the same net price, since any loss in Canadian sales is easily made up with sales to the large global market.

This point was recently made in an amusing Wall Street Journal article showing American reactions to Canada’s newly enacted tariffs on licorice, lawn mowers, inflatable boats, playing cards and assorted other consumer products. The United States Playing Card Co. reacted to Canada’s tariffs by........

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