The tariff war started by Donald Trump provides Canada with a wonderful opportunity to revitalize our economy in ways that political leaders would not have previously dared to do. As Winston Churchill reportedly said, “Never let a good crisis go to waste.”

First, let’s look at what we should not do. Fighting tariffs with counter tariffs (Elbows up) may hurt the US a little but it will be disastrous for Canada. Yet that is exactly what our Prime Minister, Mark Carney, is doing. It is a wildly popular response. Even supported by the opposition Conservatives. But is this good for Canada?

What is the likely result of this strategy? Even more tariffs by the US and retaliation by Canada on and on until one side caves. It won’t be the US with a vastly stronger economy than Canada. What do tariffs do? They force the companies paying the tariffs to raise their prices or stop providing the goods to the country imposing the tariffs. So, when Canada puts tariffs on goods coming from the US, Canadians pay the price or do without the product. Is that what Canadians want? Less choices in the marketplace and/or more expensive choices. What about Canadian companies? Well, with less competition from the US, they will raise their prices or lazily produce shoddy products. It doesn’t sound like a smart policy to me.

So, what should Canada do?

We should drop ALL tariffs on the US unilaterally. If putting tariffs on US products is bad for Canadians, as shown above, then removing them now regardless of what the US may do is good.

I can hear you saying, but how will Canadian companies survive with US products coming into our market tariff free while they are shut out of the much larger US market by Trump’s tariffs? In this article, I will suggest numerous strategies to help Canadian companies without hurting Canadian consumers.

Before I talk about these new initiatives, consider what US voters will do in response to a total elimination of our tariffs. They will realize that they are paying more for everything as inflation rises. This has already begun and it is not solely due to higher gas prices. The contrast between our elimination of tariffs and Trump’s implementation of them will make the realization come even sooner.

Voters will then vote out anyone who supports the US tariffs. That will concentrate the minds of Republicans and, in a best-case scenario, lead to a new trade deal with ZERO tariffs/duties. The current trade deal is not free trade but simply freer trade. A complete economic union would be the best for both the US and Canada. In fact, I can see Trump boasting that Canada has caved and he has secured the best trade deal in all the universe ever!!!

Dropping tariffs is a first step and good on its own but we can go much further. Trump wants Canadian companies to move to the US to avoid his tariffs. We want US companies to move to Canada, as well as the smartest and most entrepreneurial people. Here’s what we must do:

1. Reduce corporate taxes

The average combined federal/state corporate tax rate in the US is 25.8%. In Canada the average federal/provincial tax rate is 26.5% (lower for small businesses). The difference is not great but the US with its much larger economy has many other advantages, which Canada does not have so we need to significantly lower corporate tax rates. Tim Sargent, Director of Economic Growth and Prosperity at the University of Calgary’s School of Public Policy argues for a cut in the federal corporate tax rate from 15% to 10%. Doug Porter, chief economist at BMO Financial Group suggests a more modest cut along with personal tax rate cuts. Regardless of the amount, almost all economists agree a corporate tax rate cut is necessary to improve corporate competitiveness.

Will the tax rate cut reduce tax revenues? Corporate tax rate cuts will lead to more investments in facilities, equipment, and employment, as well as increased employee productivity and lower costs for consumers. In 2000-01 the federal corporate tax rate was 28%, and corporate tax revenue was $28.3 billion. By 2012 the rate had been cut almost in half to today’s 15% but tax revenue climbed to $36.1 billion. In the past fiscal year corporate tax revenue had climbed to $97.1 billion.

Some of the revenue increases were due to inflation, population growth and natural productivity improvements but certainly not all. Further, the benefits of a corporate tax rate cut would include, more employment, better jobs, more consumer choice and lower prices.

2. Welcome foreign investment

Restrictions on foreign investment should be eliminated except for bad actors (e.g. China) in national security fields (e.g. uranium). Otherwise, just as Trump wants our companies, we want his and others to invest in Canada.

3. One Canadian market

The federal government has eliminated trade barriers within Canada, and the provinces have promised to do the same but for the most part, they have not. This is a national crisis, and Carney should use the power of disallowance to eliminate any provincial laws that hinder free trade within Canada.

4. Lower personal income tax rates

While our corporate tax rates are slightly higher than those in the US, our personal tax rates are much higher with the top marginal tax rates about 55% in Canada compared to about 40% in the US except for New York and California. Capital gains tax rates are also lower in the US. The discrepancy encourages the smartest, most entrepreneurial people, as well as. doctors to move to the US (brain drain) and discourages these people from moving to Canada.

See my article, Income tax reform – a not so modest proposal, for more ways to improve our income tax system.

Trade deals with other countries and major projects in Canada

Carney is correct that we need to trade more with other countries, but he must stop talking and start doing. Since he took office, despite all his extensive travels, he has concluded only two substantial trade deals (with Indonesia and Japan).

He opened an accelerated major projects office but very few major projects have been approved. So far two copper mines, a nuclear power facility due in 2030 and phase 2 of an LNG project. No new pipelines have started construction.

The time act boldly is now. We cannot afford to wait.

***************************************************************

I’m back and plan to do more topical articles. I don’t make money from this blog but do appreciate readers so, if you like my articles (whether you agree or not) pass them on and encourage others to subscribe. It is free. Conversely, if you don’t want to hear my views anymore, unsubscribe.