Don Wright

In 1973 Joe Frazier, the world heavyweight boxing champion at the time, fought George Foreman. Foreman was younger, taller and had a fearsome reputation for knocking out his opponents quickly. Frazier immediately began trading punches with Foreman in the centre of the ring. Foreman knocked Frazier down six times in the first two rounds before the referee called a halt to the fight.

In 1974 Muhammad Ali, hoping to recover the title stripped from him in 1967, fought Foreman in the “Rumble in the Jungle” in what is now the Democratic Republic of Congo. Going into the match, Foreman was a 4-1 favourite to beat Ali.

And yet, Ali won. How?! Rather than engage in trying to match Foreman blow-for-blow in the centre of the ring, Ali leaned back on the ropes in a defensive position for much of the early rounds and let Foreman tire himself out trying to punch through, a strategy Ali called “rope-a-dope.” As Foreman tired, he let down his guard and Ali was able to knock him out in the eighth round.

This is an instructive metaphor for Canada’s response to Donald Trump’s tariff threats.  We should be fighting like Ali, but we are fighting like Frazier.

The dominant response from Canadian leaders of all political stripes is that we must “stand up to the bully,” and match Trump’s tariffs “dollar-for-dollar.” The emotional (and political) appeal of that is clear, but it is not very smart.

The U.S. economy is 14.5 times the size of ours. Canadian exports to the U.S. account for about 18% of Canada’s GDP. U.S. exports to Canada account for 1.2% of its GDP.  Matching the U.S. tariffs dollar-for-dollar is akin to telling the “hundred-pound weakling” to match George Foreman blow-for-blow. We know who is going to come out better in that exchange.

Tariffs are largely exercises in self-harm – they impose significant costs on a country’s households and businesses. The retaliatory tariffs announced and contemplated by our government will make life more expensive for Canadian households, and raise costs and reduce the competitiveness of Canadian businesses. This makes us all worse off.  At a time when Canadians are struggling with affordability and our businesses are struggling to compete, does this make sense?

One small example:  some of the items on the federal government’s proposed second round of retaliatory tariffs[1] are building supplies, tools and and equipment.  Is this the right time to be making construction costs in Canada even higher?

University of Calgary economist Trevor Tombe estimated the impact of 10% tariffs between the U.S and Canada[2]. If the U.S. puts 10% tariffs on all Canadian exports, Canada’s real income falls by 0.88 percent, U.S. real income falls by 0.63 percent. If Canada matches this with 10% tariffs on U.S exports, Canada real income falls by 1.51 percent, U.S. real income falls by 0.95%. So, yes, retaliatory tariffs would impose costs on the U.S., but they would cost Canada proportionately more. If we were talking about 25% tariffs, the costs would scale up. Canadians can’t afford much of that type of “winning.”

Does that mean we don’t push back on Trump? No, but we need to be smarter. As in any kind of “war” with an opponent, the tactical yardstick should be low costs borne by us relative to the costs imposed on them. Elsewhere I have suggested taking measures that ensure that all of the incidence of U.S. tariffs on Canadian natural resource exports are borne by American households and businesses.[3] Among many creative ideas, one is an extensive advertising campaign in the U.S that reminds Americans why prices are going up. But, the main criteria here must be a favourable Canada/U.S. cost ratio.

My major point, however, is that we should make like Muhammed Ali – practise some rope-a-dope and let Trump punch himself out. He is furiously swinging in multiple directions right now – at China, Europe, Ukraine, the domestic culture war, and everything else. Rather than one boxing match, he has taken on many simultaneously.  There is evidence that the U.S. economy may be stalling. Trump’s actions are damaging business confidence in the U.S., and if the tariffs remain in place American households and businesses will see higher costs. This has already begun to cost him politically.[4]  And the cost will grow the longer his tariffs remain in place.

It is too early to know how much the North American free trade arrangement will unravel. But, if dis-integration of the Canadian and U.S. economies is going to happen, we need to do that consciously, and with a well-thought-out plan.

Before we get there, let’s be not afraid to lean back on the ropes. If the Ali metaphor doesn’t work for you, perhaps take a cue from Napoleon when he said, “never interrupt an enemy when he is making a mistake.”

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This story was published by Don Wright in his LinkedIn profile in a two part series. You can find it here https://www.linkedin.com/in/don-wright-987b9012/

[1] https://lnkd.in/gKzTkHng
[2] https://lnkd.in/gSHRJwW4
[3] https://lnkd.in/ggfxCJXf
[4] https://lnkd.in/gXey7rHe