Trump will undo the Davos and free trade agenda globally
The Davos elite gather from Jan. 16 to 20 in the Swiss Alps to do business and to advance a decades-old agenda of globalization, multilateralism and environmental responsibility.
Davos embodies a distinctly European” sensibility and Canadian governments love its multilateral vibe. But the only American president to embrace this fully was Bill Clinton. No president since his tenure has attended and president-elect Donald Trump will be no exception.
Trump, along with Marie Le Pen and the Brexit crowd, represent the pushback against much of what Davos has promoted. These leaders have launched successful movements amongst those workers who have been left behind as a result of free trade, green policies, and automation.
The paradigm shift is that America will bi-lateralize trading relationships, thus reordering the Davos agenda. Protectionism will replace trade liberalization and bilateralism will supplant multilateralism. For at least the next four years, the United States will reconstitute each of its relationships one by one.
This is both bad and good news for Canada. A renewed bilateral relationship, and muted three-way NAFTA one, will help open up the common border more than has been the case, given Mexico’s problems and low wage rates. Canadians have little to fear because the relationship is already symbiotic and harmonious. Trade is just about equal in absolute numbers and most years Canada has a relatively small trade deficit. This is the world’s most mutually beneficial and integrated trading relationship.
Trump will also open the government coffers, which will create mixed results. His tax cuts, pro-fossil fuel policy and trillion-dollar infrastructure spend will create an economic boom that will indirectly benefit Canada. But it may also bring about inflation and higher interest rates. In addition, his 15 per cent corporate tax rate goal will force Ottawa to match, costing the treasury billions a year.
And there will be horse trading. Trump will approve Canada’s Keystone XL, but in return will want something in return. This may be a request to dramatically increase defense spending or, alternatively, to blend the two militaries into one NORAD force to protect coastlines and airspace.
Obviously, the relationship with Washington is the highest priority and it’s unlikely there will be chemistry between its leaders in a policy sense. But there won’t be a lot of pushing around as will be the case with Mexico, China and scores of others. There will be no talk of walls and respect, if only because Canada’s army of snowbirds and brain drainers (more than 2.5 million people live full and part time in the U.S.) contribute as much to U.S. GDP as the equivalent GDP of several small states.
Canada is also unlikely to be slapped with taxes on our exports, given that the lion’s share of exports in both directions are merely intra-corporate transfers between parent companies and branch plants. Taxing Canadian imports damages American multinationals like the auto makers, oil companies and retailers who dominate the Canadian economy.
This year, Davos will be twice sabotaged by Mr. Trump. Firstly due to policy divergence, but secondly because his Jan. 20 inauguration takes place during the conference. This guarantees sparse attendance among heads of state who have traditionally trekked to Davos to eat canapés with the corporate leaders, who now are going to Washington to see the Great Man crowned.
But the push back movements sweeping mature democracies have also led many leaders – with one notable exception – to boycott Davos. Canada’s Prime Minister is touring the country’s Tim Hortons shops and other venues to stay in touch with the common folk. The leaders of Germany, Britain and France are not attending and Israel’s Prime Minister has cancelled to attend Trump’s inauguration.
Despite all this, the leader of the biggest beneficiary of globalized trading – China’s President Xi Jinping – is attending Davos for the first time.
His attendance at this juncture is ironic. China has capitalized the most from the Davos-supported trade agenda but his decision to make a splash in this remote Swiss enclave comes just as his customers and their leaders change course.
Maybe he would have been well-advised to fly to Washington and procure a ticket to some inaugural festivities instead.