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Trump’s latest Buy American order mostly rhetoric but could harm Canadian businesses: experts

President Donald Trump during a visit to headquarters of tool manufacturer Snap-On on April 18, 2017 in Kenosha, Wisconsin. While there, Trump signed an executive order to try to bring jobs back to American workers.

OTTAWA — Donald Trump announced new Buy American policies Tuesday that experts say could hurt Canadian businesses — and he took an opportunity to take a public dig at Canada’s dairy sector in the process.

Although the “Buy American and Hire American” executive order Trump signed appears to contain more rhetoric than immediate action, there are fears American suppliers and distributors who now rely on Canadian input may turn inwards in anticipation of stricter policies down the road.

Even if no change immediately takes place, U.S. firms may start to say, “I might as well just buy American,” warned Milos Barutciski, co-chair of the international trade and investment program at Bennett Jones LLP in Toronto.

“The problem is the tone as much as the legal effect that’s worrisome and that could be injurious to Canadian suppliers,” he said Tuesday, recalling a similar effect when previous president Barack Obama imposed Buy American rules in the wake of the 2008 financial crisis.

Rather than imposing a ton of new rules, the order focuses on plans to increase enforcement and waive exemptions that, up until now — and as required by the North American Free Trade Agreement — have allowed foreign companies to continue bidding for projects alongside American competitors. The order also seeks to tighten rules around the issue of visas for skilled foreign workers.

Waivers and exemptions have been “abused greatly,” a U.S. senior official told reporters Monday. Agencies and departments will be “cracking down” on weak compliance and anti-dumping, and “rooting out every single Buy American loophole,” the official said. Commerce Secretary Wilbur Ross is mandated to submit a report within 220 days, which “will serve as a blueprint for additional executive and regulatory actions.”

The policies spell uncertainty for a wide range of Canadian exporters, selling everything from stationery to construction equipment. The order also specifically promises to bolster American steel, which could affect cross-border infrastructure projects.

“Our leverage is the fact that our firms are highly integrated with U.S. companies. They depend on access to Canadian inputs, whether they’re services or manufactured products or commodities,” said Lawrence Herman, an international trade lawyer based in Toronto.

“That integration, and the fact that we participate so closely in supply chains, gives us an advantage that offshore firms wouldn’t have, certainly not to the same extent.”

Herman said he believes this is a harbinger for “aggressive” NAFTA negotiations to come, and impacts would “run the gamut” across Canadian manufacturing and service industries.

Before signing the order Tuesday, Trump gave a speech railing against international trade agreements, called NAFTA a “disaster” and specifically rebuked Canada for “unfair” dairy rules that affect people in Wisconsin, where he made the announcement.

“Very, very unfair. It’s another typical one-sided deal against the United States and it’s not going to be happening for long,” Trump said. “We’re going to call Canada and we’re going to say, ‘what happened?’ ”

A letter from Canadian ambassador to the U.S. David MacNaughton, dated Tuesday, reacted to Trump’s comments contesting the idea that “Canada’s dairy policies are the cause of financial loss for dairy farmers in the United States.”

“The facts do not bear this out,” MacNaughton said in the missive sent to New York and Wisconsin governors, chastising the Americans for laying “blame where it does not belong.”

“Canada upholds our international trade obligations,” the letter states pointedly, including permitting duty-free and quota-free access to the Canadian market for certain American milk products.

In the face of potential restrictions on Canadian exports to the U.S., whether through “Buy American” policies or a possible border-adjustment tax, MacNaughton explained Canada has not taken any of its own actions to limit U.S. imports, and Canada’s dairy sector is “less protectionist” than America’s.

“The Canada-U.S. partnership is a model to the world. Let’s keep it that way,” the letter concludes.

While it is assumed complaints centre on supply management, a system of subsidies for Canadian dairy producers, there are other trade intricacies at play. A year ago, Ontario farmers cut prices for a concentrate product called ultrafiltered milk. Unlike most other dairy products, U.S. farms were able to export it to Canada without major tariff issues, but the new pricing from Canadian farms has caused major losses.

Specific trade spats such as that one, along with more systemic complaints such as supply management, may come up during NAFTA negotiations.

Rhetoric around NAFTA and Buy American/Hire American is part of a bigger protectionist narrative out of the U.S. administration that the Canadian government has been trying to counter.

Mandel Ngan/AFP/Getty Images Finance Minister Bill Morneau

Finance Minister Bill Morneau is expected to raise concerns at a G20 finance ministers’ meeting in Washington Thursday. Specifically, finance officials told Canadian reporters Tuesday, it is believed the “Buy American and Hire American” executive order will run counter to protections Canada has secured through NAFTA.

Provincial governments have also been active in trying to prevent Buy American policies, with Ontario cabinet ministers successfully deterring New York lawmakers earlier this month from imposing stricter rules in their state budget.

The Liberal government should be talking to allies in state governments and industries that involve a lot of Canada-U.S. co-operation, said Conservative party trade critic Gerry Ritz.

“The state of New York has said, ‘Buy American is a nice guideline, but we’ll go our own way.’ There are states like California, Texas, where we’re their largest trading partner,” he said. Ritz added that executive orders still need to have Congressional oversight, and none of this is unexpected because it’s what Trump campaigned on. “Forewarned is forearmed,” he said.

The National Post reported at the end of March the Liberal cabinet is considering retaliatory measures. A memorandum to cabinet obtained by the Post said local expansions of Buy American policies could result in “the loss of hundreds or thousands of Canadian jobs,” and Canada could restrict the use of U.S. iron and steel in retaliation.

“Trade retaliation is one of those silly things where retaliation basically means you hurt yourself as much as you hurt the other guy,” Barutciski warned, saying any tariffs or restrictions on U.S. imports would result in higher costs for Canadian consumers, including Canadian governments. “It should be the last resort.”

But Herman said he thinks Canada should respond “as aggressively as we possibly can,” even if there are short-term negatives.

“When you’re in a fight, you have to respond and throw your best punches. If there’s a bit of blood on the floor, it may be inevitable.”

— With files from John Ivison and The Canadian Press