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Canada And Mexico Under Attack: The China Solution – OpEd

For reasons that obviously have nothing to do with reality, Donald Trump has decided to renege on the trade deal he negotiated five years ago and start a trade war with Canada and Mexico. He wants to tax most of imports from these countries at a 25 percent rate, with the exception of Canadian oil, which will be taxed at a 10 percent rate. This is a tax increase of roughly $200 billion a year ($1,600 per family) that will overwhelmingly be paid by moderate-income and middle-income families. It is the largest tax increase on them that has ever been imposed. And retaliation from both countries is likely to impose additional costs. Meanwhile, both Canada and Mexico are struggling to deal with a situation where its neighbor and closest ally has turned into an erratic enemy. They can and should look to retaliate (I trust not honoring patent monopolies for items like prescription drugs and iPhones is on the list), but they should also look to longer term solutions. And there is one obvious answer here, China. The logic is straightforward. China has an economy that is already almost one-third larger than the U.S. economy and growing far more rapidly. The growth gap should grow as Donald Trump’s erratic policies sap the dynamism of the U.S. economy. But more important than its size, China produces just about anything these countries could want. It manufactures a wide range of items, many of high quality and available at far lower prices than U.S. products. It also is advancing rapidly in tech, where its AI is now at the cutting edge in terms of performance and massively cheaper and more energy efficient than the U.S. competition. As both countries look to integrate with China’s economy, they could almost certainly count on considerable help from China in getting through the near-term disruptions created by Trump’s taxes. Imagine Canada took down its trade barriers and everyone in the country could now buy high quality electric cars for $13,000 a piece? There would be a similar story with solar panels, batteries, and many other items. Canada and Mexico could turn economic hardship into an economic bonanza. It is understandable that these countries would be reluctant to tie their economies too closely to an autocratic regime like China’s, but with Trump and the Republican Party intent on abandoning democracy, their choice is which autocrat they want to line up with. Xi offers two big plusses over Trump in this respect. Deals actually mean something to him. He doesn’t abandon the pacts he negotiated because of something he read on social media. And Xi lives in reality. He recognizes that global warming is real and that you can’t prevent fires sparked by global warming through randomly opening dams. The reality is that there is no longer a superpower even ostensibly committed to democracy and the rule of law. At this point Canada and Mexico have to look at the one that can be a more stable partner for trade and investment relations. There can be little doubt at the moment this is China. This article first appeared on Dean Baker’s Beat the Press blog.