US trade wars will prompt capitalist rulers elsewhere to impose new rounds of austerity to shore up their own profits, as shown in Canada already, argues John Clarke 

Donald Trump’s threatened tariff measures are still looming over Canada. At the beginning of February, a thirty-day pause on implementation was negotiated but the danger is far from over. Indeed, increased US tariffs on steel and aluminium have now been extended to all countries and there is no exemption for Canada. It’s abundantly clear that the pervasive use of such trade measures constitutes a strategic turn by the Trump administration and, in one form or another, this changed reality will have a huge impact on Canada, given its massive reliance on the US market. 

On 21 February, the governor of the Bank of Canada, Tiff Macklem, offered some public comments on Trump’s impending trade restrictions that reveal the alarm felt by the country’s ruling establishment and show high-level thinking on strategies that may be adopted in the face of US protectionism. 

According to the CBC, Macklem forthrightly acknowledged that ‘sweeping, broad-based tariffs’ would have a major impact and that ‘the hit to the Canadian economy could be permanent.’ Addressing a business audience, he suggested that tariffs would have an even more serious effect than Covid. ‘In the pandemic, we had a steep recession followed by a rapid recovery as the economy reopened,’ Macklem said. ‘This time, if tariffs are long-lasting and broad-based, there won’t be a bounceback.’ 

Structural change 

Macklem had obviously decided to drive home the seriousness of the economic threat posed by Trump’s tariffs in a very public manner. He went on to suggest that: ‘We may eventually regain our current rate of growth, but the level of output would be permanently lower. It’s more than a shock — it’s a structural change.’  

The BOC ‘estimates an 8.5 per cent decline [in trade] in the first year following broad-based tariffs, with Canadian exporters expected to respond by cutting production and laying off workers.’ A 2.5% reduction in consumer spending by 2027 is predicted. Macklem noted that with ‘exports to the United States accounting for roughly one-quarter of our national income, the shock would be felt across Canada.’  

Macklem argued that a trade war would lead to a major fall in investment spending which would ‘wipe out growth in the economy’ for the rest of this year and in 2026. This would mean a decline in household incomes and any retaliatory measures that were taken in response to US tariffs would lead to increases in consumer prices. Thus, the expectation is for a serious economic downturn and increased unemployment to be accompanied by major inflationary pressures. 

The predictions coming from the BOC, which are unlikely to be exaggerated, point to a huge assault on working-class living standards. As we might expect from a central banker, however, Macklem had no proposals to offer with regard to those impacts. Certainly, he offered no thoughts whatsoever on strengthening the systems of income support and social provision that will be vitally needed in the period ahead. He didn’t propose any change of course when it comes to the agenda of austerity and the deep social cutbacks that have ensured that the impacts of Trump’s trade measures will be felt all the more sharply by workers and hard-pressed communities. 

Macklem was by no means silent, however, when it came to strategies that could be adopted in the face of US tariffs. He pointedly threw his weight behind an approach that business lobbyists have been raising insistently ever since Trump announced his intentions. Unsurprisingly, the BOC is convinced that removing ‘rules that restrict interprovincial trade and harmonizing or mutually recognizing provincial regulations could provide some offset to increased trade friction with the United States.’ 

The Breach recently challenged this persistent refrain that ‘we must tear down so-called barriers to trade across provinces,’ suggesting that it constitutes ‘a corporate scam’ in which business ‘lobbyists and right-wing think tanks are exploiting Trump’s threats to push their deregulation agenda.’ Yet, the call to remove these supposedly stultifying restrictions has turned into a veritable political campaign that leading politicians have supported. 

Under Canada’s federal system of government, the provinces and territories set the rules over wide areas of public policy. The strategy that Macklem was endorsing would mean driving down provincial standards to the lowest common denominator with harmful results. As the Breach puts it, what ‘these corporate-backed groups really mean when they talk about removing internal trade barriers is dismantling regulations that protect workers, consumers, the environment, and nascent industries.’ 

That the emerging trade war should become an opportunity to undermine the network of regulations that provide limited protections to workers and communities, while mildly restraining the exploitative and destructive conduct of major companies, is enormously telling. Indeed, the effort to impose the very real costs of the trade war on working-class people will be extended over a very much wider front. This attack, moreover, will be justified with the claim that it serves a mythical ‘national interest’ that workers and capitalists are supposed to have in common. 

The response of the Canadian establishment to US protectionism may take various forms that aren’t mutually exclusive. There is the option of retaliating with countermeasures but, while these would have a significant impact on the US, the imbalance of trading strength makes an all-out trade war a dubious proposition. It is likely that, for all the patriotic bluster in high places at the moment, there will be some level of capitulation, as Canadian political leaders seek compromises with the Trump administration. Finally, there will doubtless be efforts to diversify trading arrangements and secure new export markets. 

Class war 

The reality is that any and all of these options mean intensified class war. The focus of Canadian capitalists will be to weather this storm and adjust to the changed situation by acting vigorously to preserve the flow of profits. If an attempt is made to fight it out with Trump in a contest of escalating tariff measures, an economic downturn is inevitable, leading to a drive to rationalise workforces, drive down wages and intensify austerity measures.  

If it is possible to secure a compromise with Trump by agreeing to less favourable trading terms, the pressure on profits that this will generate will lead to exactly the same attacks on workers and communities. To the extent that new export markets are pursued, the ‘national interest’ will demand that working-class people pay the price for making Canada more ‘competitive’. The cynical ‘all in it together’ message that is being pressed at the moment will fall apart, as the reality of opposed class interests becomes all too clear. 

The greatly increased use of tariffs is but one part of the startling transformation of the international role of the US that is underway. From shouldering the burdens of a supposedly responsible world leadership, conducted within the norms of a ‘rules-based order,’ the Trump administration has gone over to the stark crudities of America First. Under this approach, hard new bargains are to be imposed on friend and foe alike, in order to produce immediate gains for the US. 

A shocked Macleans Magazine, very much a mouthpiece of the Canadian establishment, has complained that ‘Donald Trump is trying to turn global diplomacy into a lawless extortion racket, and the weaker the mark, the harder the shakedown.’ Most European leaders, including Volodymyr Zelensky, probably wouldn’t disagree with that assessment. 

The huge strategic turn that the Trump administration has embarked upon will see the former junior partners of the US adapting to the changed circumstances in a range of areas, including global trading arrangements. For Canada, dependent on trade with the US to a unique extent, this process of transition will be particularly jarring and difficult.  

The course that is pursued in this crisis situation, as the current thinking of the Bank of Canada shows, will be determined by the interests of the country’s capitalist class. Trade war will go over to measures of class war and the need for an independent working-class strategy that refuses intensified exploitation and austerity in the ‘national interest,’ will be absolutely vital.