Trade disruption would likely spell the end of North American jobs surge: Don Pittis

Ironically, U.S. President Donald Trump's strident views on trade have turned thehumdrumsubject of exports and imports into the stuff of water cooler chatter.

Presidential quotes that include hotwords like "war" and "winning" are front-page news around the world.

But the real economic bottom line in any trade action won't benet exports, but whether Trump's trade disruption will throttle down the North American job-creation machine, whose latest numbers will be released Friday.

We expect more news on Trump's tariff plans as soon as today, and there are now signs that, under pressure from U.S. free traders, the president mightspare Canada and Mexico.

The overwhelming expert opinion is that if Trump were to go ahead with his big tariffs on steel and aluminum,jobs wouldsuffer.

Fighting the 'cheats'

The message that Trump's America will fight back against trade cheats to make the country great again worked in the presidential election campaign.

There are some signs it is still working among his coresupporters, according toBloomberg.

"There's a feeling of identity with Trump,"Yale University economist and Nobel Prize winner Robert Shillertold the news service. "The man they identify with is in power and that's exhilarating."

But a report released this week from the BrookingsInstitution, a D.C.-based think-tank, shows manyU.S. voters from all sides of the political spectrum are already worried about the effect of Trump's anti-trade attitude on jobs.

Job killers

Among experts itisdifficult to find voices defending Trump's tariff and trade war policy as being good for U.S. jobs.

The essential economic argument is that while some jobs in specific steel and aluminum plants would benefit, those have to be weighed against job losses or reduced job creation in other sectors.

U.S. factory bosses worry that even within the steel sector itself, manufacturerswill be damaged by the tariff.

Just as Canada exports pulp andbitumen to the U.S. to be upgraded into higher value products, countries including Brazil, Russia and Mexico sendunfinished steel to the U.S. to be transformed using sophisticated technology and soldat a higher price.

That upgrading of relatively raw materials, or value added, is one of the strengths of trade.

Canada and the U.S. both export and import about the same amount of steel. Suddenly witha 25 per cent tariff, importerscouldbe forced to try to ship goods east and west across the country instead of north and south across the border.The inefficiencies would be absurd.

The inevitable effect is that the price of U.S. steel and aluminum wouldrise. The price of products made with that steel and aluminum wouldalso rise, making U.S. products less competitive at home and in foreign markets.

In the case of aluminum, the U.S. produces a fraction of its needs, meaning a trade war could leave it short of the metal for making all kinds of goods, including civilian and military aircraft.

Free trade rebound

And all that ignores the risk to U.S. exports if countries decide to retaliate. Forget Europe's threat to Kentucky corn whisky, if Mexico were to decide to stop buying actual U.S. corn and milk products, the effect on Midwest farmers would be devastating.

As the Bank of Canada showed yesterday, the automatic stabilizing effectof currency movements following a trade disruption could result inall U.S. goods and servicesbecoming more expensive here. After the central bank's statement cited trade as one of its concerns preventing it from raising rates, the Canadian dollar declined, dipping below 77 cents US, but bounced back after rumours started circulatingthat Trump's worst provisions were off the table.

• Loonie wobbles as Bank of Canada cites trade fears in interest rate decision

Bank of Canada governor Stephen Poloz has already worried publicly that trade fears are having an adverse effect on jobs and the economy as companies hold off on investments until they see whether a NAFTA deal can be done.

By extension, the same considerations will apply to all North American investors until they see the final version of Trump's tariffplans.

By contrast, clear signs of a resolution on steel, aluminum and NAFTAwould likely have the opposite effect on the markets and the economy. They would also be good for jobs.

Follow Don on Twitter @don_pittis

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