Beyond NAFTA tweaks: How Trump's anti-trade talk could be bad for Canada

Following a daily barrage of Donald Trump-related political craziness, the normalcy of Prime Minister Justin Trudeau's White House visit earlier this week was almost surreal in its ordinariness.

Maybe that's what we can expect from here: just a series of handshakes, working lunches and collegial joint statements.

After all, odds are that Congress won't pass a border adjustment tax. And even if NAFTA is ripped up, as opposed to tweaked as the new U.S. president is suggesting, it's hard to see how the ensuing bilateral negotiations would stray too far off the beaten path. Sure, we may lose on softwood lumber or country-of-origin labelling, but that's hardly the stuff of an economic death spiral.

• Trump and Trudeau meeting hits right notes for Canadians wary of trade threat
• Trudeau'svisitmoment of calm in tumultuousWhite House

The potential for such a conventional outcome is certainly comforting, but does it really square with the Trump administration's seeming determination to upset the global apple cart? Possibly, but the chances that good neighbourly relations means Canada will get away unscathed would also appear to ignore the mass of storm clouds nowgathering.

Exhibit A: Steve Bannon

As the world tries to decipher the Trump administration's helter-skelter approach to governing, the one through-line looks to be the rumpled figure of chief strategist Steve Bannon. Parsing his extensive body of interviews, public talks and documentary films for clues aboutwhat'scoming shows that Canada has reason enough to be frightened.

In one widely cited quote, for instance, Bannon reportedly called himself a Leninist not due to any allegiance to Marxist ideals, but rather a shared embrace of disruption.

"I want to bring everything crashing down," he said. "And destroy all of today's establishment."

Skip ahead to Trump's cabinet picks to see what an anti-institution agenda looks like in practice. There's energy secretary Rick Perry, a former Texas governor who forgot the name of his new agency during a 2011 presidential debate, even as he was promising to get rid of it. Climate change skeptic Scott Pruitt will steward the Environmental Protection Agency, while Betsy DeVos, a charter school advocate who never attended public school, will lead education.

The many ironies of Trump's cabinet are well covered. But if they share a common denominator, it's hostility toward institutions. In that context, when the president muses about leaving the World Trade Organization (WTO), stepping back from NATO or defunding the United Nations, the moves fit a larger pattern.

Trade protectionism is, of course, part-and-parcel of this same inward-looking narrative. Enter Peter Navarro, the head of Trump's new national trade council, whose stridently anti-China views put him on the fringes of economic thought.

For Canada friendly noises about NAFTA or otherwise the possibility of a trade war with China is where things could take a dark turn.

Tariff retaliation

If the U.S. put a major tariff on Chinese goods, China would almost certainly retaliate. Suddenly, American products once bound for China would need to find a new home, as would those going the other way.

Inevitably, some of those displaced exports would wash up in Canada, potentially swamping domestic producers and compelling Ottawa to implement its own protective tariffs.

"The prospect of retaliation and of significant tariffs undoes a very well-developed, finely-tuned global trading system," said Dan Ciuriak, a former deputy chief economist at the Department of Foreign Affairs, now the head of Ciuriak Consulting.

"When things start to deteriorate, people start scrambling and if this is an every-man-for-themselves kind of a world, then it's going to be difficult for Canada to navigate these particular waters."

If the world goes down that path, the next question is whether the U.S. would accept a ruling from an eventual WTO challenge. A decision to withdraw from the organization, rather than comply with the regulations that govern international trade, would change the ball game for the global economy.

• Canada's takeaway from Trump meeting: 'cautiously optimistic'

As much havoc as that would cause, it could be exactly what Trump wants: a zero-sum world of trade negotiations in which the U.S. always lands on top.

"The Trump administration would prefer to negotiate one-on-one and not in groups," said Ciuriak. "Then in every relationship they've got the whip hand."

Depriving itself of trading partners would sting, but the U.S.could also weather the storm better than any other country, given the vast size of its domestic market.

As for the rest of the world? It would be lucky to avoid a depression,Ciuriak said,asthe global trading system unravelled. Bleak as that is, theprospect isn't even the darkest potential scenario.

America First

International bodies like the UN, the WTO and the International Monetary Fund were created, in part, to keep the world talking. The consequences of a breakdown in this post-war system, which allows Canada to punch above its weight on the world stage, are a risk for more than just the global economy.

"These kinds of institutions act as a kind of a glue They also have all these indirect benefits of keeping everyone around the table and keeping some of these conversations global and multilateral, instead of creating isolated, more conflictual kinds of dynamics," said Jacqueline Best, a political economist at the University of Ottawa, who studies international financial governance.

"I keep going back and looking at the '20s and '30s and the lead-up to the last World War. A lot of things are different, but there are enough echoes to be very worrying."

• Trade walls would hurt Canadian and U.S. economies, 2 new reports suggest

Erecting trade barriers won't necessarily escalate beyond simply being an economic tactic. Still the prospects aren't helped by one of Bannon's central beliefs, outlined in a 2014 talk at a conference at the Vatican, that a "major war is brewing" between the West and the Islamic world.

Of course, a straight line doesn't exist between an America First trade policy and the possibility of a shooting war. It's still a road not yet taken and any number of steps still need to happen in between.

Still, trade protectionism, at this point, is one of several signposts pointing in a direction that's decidedly less reassuring for Canada than the idea that NAFTA just needsa few tweaks.