Donald Trump's cabinet choices want to tax Canadian imports 20 per cent

Article content

Donald Trump has made a few eyebrow-raising appointments to his cabinet, and there are implications for Canada in those choices. Wilbur Ross for Secretary of Commerce, for example, threatens to transform the previously promotional role of the Commerce Department into an activist flashpoint to promote the very protectionist agenda taking shape within Trump’s otherwise incoherent economic policy.

Ross co-authored a policy paper that suggested renegotiating NAFTA and called for combating the use of foreign consumption taxes that render American-made goods less competitive. Trump echoed the paper’s views in campaign speeches.

We apologize, but this video has failed to load.

Try refreshing your browser, or
tap here to see other videos from our team.

Donald Trump's cabinet choices want to tax Canadian imports 20 per cent Back to video

A point that is, or should be, most alarming to Canadians is the apparent embrace of the concepts inherent in the document authored by the Ways and Means Committee headed by Paul Ryan that advocates for a “destination-based approach to taxation that has long been used by our trading partners.”

What does that mean, exactly? It means that, at the border, goods coming into the United States from abroad will be hit with a 20 per cent Value-Added Tax (VAT), while goods exported from the United States will be tax-exempt. This immediately creates a preferential bias on the part of Americans for American-made goods. 

Between Ross’s advocacy and Trump’s embrace of the idea to “renegotiate” NAFTA, and the implications evident in such tax reform language, the threat to Canadian trade is obvious.

Ostensibly, this sets back globalism concepts, which seek to eliminate tit-for-tat tariffs which are the inevitable result when countries go unilateral on their trade policy. Ultimately, the imposition, collection and reconciliation of such taxes only adds to the red tape and costs of cross-border trade. 

Trump wants to penalize companies that seek to move jobs outside of the United States to capture wage cost differentials, and he is right in imagining that this policy, alongside his one-time 10 per cent offer to corporations to repatriate offshore cash, as well as his target 15 per cent tax rate from the current 35 per cent, will incentivize companies to fall in line. The border adjustment VAT described above is the stick component of that equation.

While we as Canadians can fret all we want over the policies of our neighbour to whom we ship 75 per cent of our exports, we don’t get a voice at the table, unless its in an international trade format like NAFTA. We can also pursue arbitration through the World Trade Organization, but don’t be surprised if Trump sees an opportunity to diminish that institution’s effectiveness in mediating situations that do not have a high chance of a favourable outcome for America.

Above all, the shoot-from-the-hip and worry about the contradictions later approach of Trump’s electoral campaign appear to be transferring seamlessly into his presidential style. At this point, with the victory laps and ongoing populist pretension, it seems lost on Don that he won, and the business of Presidenting has a different profile than that of campaigning.

The Republicans appear to have accepted their fate, and are now seeking to reconcile and ingratiate themselves with their new leader. Trump was an outsider who now is The insider, while those on the inside who sought to reject his candidacy are now outside looking in. The display of ingratiating pride-swallowing going on in Washington is disturbing to say the least. It leaves one to wonder just how much the real character of American politics is reflected in the new president-elect.

James West is an investor and the author of the Midas Letter, an investing research report focused on Canadian markets. The views expressed are his own and are presented for general informational purposes only. They should not be construed as advice to invest in any securities mentioned.

James West and/or associated funds do not own shares in any securities mentioned in this article. For the full Midas Letter disclosure policy, click here. Postmedia and Midas Letter have a revenue sharing arrangement.