Monday, July 1, 2019

Trump Tariffs Are Making Canada Great Again

My family and I took a vacation to visit friends in the Canadian province of New Brunswick recently. New Brunswick, which is located to the northeast of Maine, is a long drive from Georgia so we took the opportunity to explore the area while we there. While we shopped at a lobster and seafood shop in the seaside village of Alma, I had an interesting conversation with the proprietor.

As we browsed, the owner asked me what I thought of Donald Trump. As I usually do, I replied noncommittally that I wasn’t a huge fan of the president.

“Well, he’s been good for us,” the Canadian shop owner replied.

He went on to explain how President Trump’s trade war had helped Canadian lobstermen. Like many farmers and fishermen, the lobstermen of Maine exported much of their catch to other countries, including China.

At least they did before the trade war. Seafood Source reported that 2018 had started as a bumper year for Maine lobster, but the implementation of tariffs quickly changed that. After China raised retaliatory tariffs on American imports, lobster shipments declined by 84 percent.

Canadian lobster exporters, unaffected by the US-China trade war, have picked up the slack. The shop owner explained that many importers who had previously bought US lobster were turning to Canada. The Canadian fishermen were benefitting both from increased volume demand for their product as well as higher prices.

While we were in Canada, the going rate for local lobster was CAD $12.99 per pound. Lobster meat was CAD $38.99 per pound. An internet price search of Maine lobster found whole lobster prices slightly lower at about $8.99 per pound (about CAD $11.80)  but lobster meat more expensive at $50-60. The higher price for US lobster meat may be due to the difficulty in finding immigrant labor. (I discussed the shortage of immigrant work visas in an article last year.)

American buyers benefitted from a favorable exchange rate in which one Canadian dollar was equal to about 75 US cents. Customers from China and other countries also benefit from the softer Canadian dollar when they buy lobster from Canadian companies. Taxes on American imports and the better exchange rate have combined to sharply boost Canadian exports.

“Our sales to China have increased dramatically this year – around 30 to 40 percent – compared to last year,” David Xu, China representative for lobster exporter ZF Max International, told Seafood Source.

Canada has also benefitted from a new free trade agreement with Europe. In 2017, Canada and the EU signed the Comprehensive Economic and Trade Agreement. One of the provisions of this treaty is that Canadian lobsters can be imported to Europe without a tariff. In contrast, European buyers must pay an eight percent tax on American lobster. US lobster shipments to Europe fell 47 percent as a result of the deal reported the Portland Press Herald. To protect themselves, many American companies are moving at least part of their operation to Canada.

Adding insult to injury for American lobstermen, Canadian lobster is often shipped through the United States to buyers in China and elsewhere. There are far more flights out of Boston and Maine than Canada’s maritime provinces so lobster that is landed and sold in Canada is often trucked to US airports where it is then flown around the world. Because the lobster came from Canada and was not sold in the US, it isn’t subject to Mr. Trump’s (or Mr. Xi’s) tariffs.

The plight of Maine’s lobstermen may not concern President Trump because most of them didn’t vote for him. In 2016, the coastal districts where the fishermen live voted for Hillary Clinton, giving her three of the state’s four electoral votes. However, the same story is being played out in American agriculture around the country, including in many red states. American farmers are losing export opportunities while foreign competitors such as Australia, Brazil, Canada, Chile, and New Zealand take over markets that were formerly dominated by the US.

Maybe those exports from the US will resume after the trade war is resolved, but maybe they won’t. Business relationships are being forged between America’s competitors and our former customers. If President Trump is re-elected then foreign customers will be leery of doing business with American companies due to the president’s habit of implementing new tariffs on short notice.

A major complaint of businesses during the Obama Administration was the unstable regulatory environment in which it was difficult to make long-term plans. That problem is worse for many businesses under President Trump. As a businessman, Donald Trump should know that business partners value reliability.

At the same time that I was on my trip, China reduced its tariffs, not on US imports but on those from competing countries. In a move calculated to further reduce American exports, China eased the import tax burden on products from countries that compete directly with American goods.

The trade war goes on and American lobstermen and farmers and manufacturers wait to see if they will be able to sell what they produce while they operate at a disadvantage in one of the world’s largest markets. In the meantime, our neighbor to the north is among the countries reaping the benefits of Donald Trump’s tariff policy.

So, if you happen to be in Canada’s maritime provinces, you can enjoy a good deal on some very fresh lobster. While you’re there, take in the beautiful scenery along the Bay of Fundy, benefit from a favorable exchange rate, and enjoy Canadian hospitality, which is a lot like Southern hospitality without the 90-degree temperatures and oppressive humidity.

And while you’re there, take just a minute to think about President Trump’s gross misunderstanding of international trade, eh?

Originally published on The Resurgent

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