Two Canadian political veterans warned Friday that Donald Trump’s plan to cut U.S. corporate tax rates is a far greater threat to Canadian businesses than his push to reopen the North American Free Trade Agreement.
An eight-page draft of potential NAFTA changes began circulating (or was leaked, according to some Washington politico wags) on March 30. The proposal outlines parts of NAFTA the Trump administration is considering renegotiating.
The document is short on specifics but indicates the White House wants to sweep a very protectionist brush across America’s borders when it comes to trade with Canada and Mexico.
With an emphasis on goods and jobs produced in the U.S. – and a mention of giving U.S. industries greater access to Canadian and Mexican markets – the draft strongly reflects the America First policy highlighted in Trump’s inauguration speech.
Tax is the real concern
Yet taxation – not trade – is what Canadian businesses should really be worried about in the Trump era, said Jean Charest, who served as a Conservative deputy prime minister during the 1990s. Speaking at an Economic Club of Canada event in Toronto, Charest said Trump’s corporate tax cut proposal makes America seem like a much more attractive place to do business than Canada.
According to a Global News report citing figures from the Organization for Economic Cooperation and Development, Canada enjoys an average combined corporate tax rate of 26.8 per cent, much lower than the 38.9 per cent rate levied in the U.S.
“Canada has had a marked competitive advantage over the States because of that,” said Charest, now a partner at McCarthy Tétrault law firm. He asserted that eventually, “Canada will have to rapidly at least match the U.S. rate” to remain competitive with its southern neighbour.
Trump hasn’t said how deeply he plans to reduce the amount of taxes paid by U.S. companies, but has repeatedly talked about cuts in broad terms.
John Baird, who was foreign affairs minister under Conservative prime minster Stephen Harper, agreed with Charest at Friday’s event, calling Trump’s proposed tax cut “more important than trade” for Canada’s business community.
Since the U.S. is the biggest superpower in the world, it can inevitably push its trading partners to make any amendments it wants, said Baird, currently a senior business advisor at Bennett Jones LLP law firm. He said the only real NAFTA questions hovering over Canada are “what kind of concessions (to make) and how many?”
Although Baird declared “Trump is fundamentally protectionist,” a more measured assessment came from former U.S. ambassador to Canada David Wilkins.
Wilkins was scheduled to speak at Friday’s event in person but got stuck in the U.S. after his flight was cancelled. After organizers patched in his voice over the PA system, Wilkins told the Toronto crowd their fears about reopening NAFTA may be unfounded.
“I think everyone realizes Canada is our greatest trading partner…I think the attitude is let’s take a 25-year-old trade agreement and improve it for both countries,” said Wilkins, a George W. Bush appointee who served in Ottawa from 2005 to 2009.
Rather than protectionism, Wilkins characterized Trump’s trade philosophy as being “all about creating jobs in the private sector.” With that in mind, he said Canada’s best approach to any forthcoming NAFTA talks is to “keep beating the drum on jobs and jobs and jobs…It bolsters your (trade) arguments.”
“Canada is different”
Wilkins said there’s “a recognition” in Washington that among all of America’s trading partners, “Canada is different than other countries.” He underlined that by adding the U.S. does “not have the huge trade imbalance (with Canada that) we have with Mexico, for example.”
The White House will reportedly present Congress with a final outline of its proposed NAFTA amendments in less than 90 days. Although the initial draft doesn’t specifically mention cloud computing, that sector was singled out in last year’s National Trade Estimates (NTE). Issued annually by the American government, the NTE report lists potential trade violations committed against the U.S. by its foreign trade partners.
The 2016 NTE report called out the Canadian government for barring U.S. companies from providing cloud storage services to Canada’s crown corporations and federal agencies. While Ottawa said national security was the reason for the policy, the NTE report complains the ban unfairly locks American cloud vendors out of the Canadian market.
Upsides for Canada?
Despite worries over the impact of future U.S. tax cuts on Canadian competitiveness, Canadian tech firms say Trump’s attempts to restrict travel and immigration from various nations with large Muslim populations could actually help them recruit foreign talent.
Trump’s plan to slash $5.8 billion in funding from the U.S. National Institutes of Health may also be boosting interest in Canadian research and academic bodies. The Universities Canada website has seen its traffic double since November and U.S. applications to University of Toronto, McMaster and McGill are up by 80-, 35- and 25 per cent respectively this spring, compared with the same time last year.