What if Trump is right on trade?

Canadians fear Donald Trump when it comes to trade. They are angry with his policies. They said his threats and prices will bring chaos and disorder. But do they actually agree with him?

It's easy to make the case that a second Trump presidency will be bad for Canada. Trump has threatened a 10 percent tariff on all US imports that could take about 5 percent off Canada's GDP. Uncertainty will weigh on confidence and business investment.

Trump has been saying for years that free trade has been a disaster for American workers; sentiments shared by many in his inner circle.

In his book No Free Trade, Trump's former trade representative, Robert Lighthizer, says what was once Washington's “almost unanimous” deal on free trade is now dead.

“While corporate profits flowed to a select group of sellers and merchants, many American manufacturing companies were shut out – forced to go bankrupt or move their factories abroad,” he wrote in the book, published last summer.

In addition, the Trump team says their protectionist policies will actually spur growth. They point to what happened during his first term as proof of that.

Trump has spent years threatening to cancel NAFTA. But in the end, the rewritten agreement (now called the Canada-United States-Mexico Agreement) has been heralded as an example of how deals can be made to benefit all parties.

Since the new deal went into effect, “trade between Canada, the US and Mexico has grown,” TD Economics wrote in a research paper after last week's election.

TD says business has increased by more than 30 percent, or more than $1.5 billion, since the deal was negotiated.

“Trump, from an American perspective, has been proven right,” said trade lawyer Mark Warner, principal of MAAW Law in Toronto.

Warner says the majority of Americans have never supported free trade and that Trump has managed to break the consensus among Republican politicians and bring the party closer to public opinion.

“When Trump came in as president he said 'No, we're not going to be the old Republican party – we're going to go after China on trade and we're going to go after everyone we trade with. We're going to look at all these deals and say what the hell,'” Warner said.

He says Republicans are not alone in moving away from free trade. US President Joe Biden, a Democrat, has kept most of Trump's tariffs in place. Canada has adopted tariffs to keep out Chinese EVs.

Ottawa has also slapped tariffs on Chinese steel products that are almost identical to the US tariff regime. And just days before the US election, Canada implemented new “smelted country” requirements that help the government see where the metal actually comes from.

That will catch the eye of many in Trump's circle. Canada is getting a lot of attention because of the large volume of trade between the two countries. But the real purpose of Trump's approach is to protect China.

In his book, Lighthizer spends a chapter recounting his grievances with Canada.

“Although it supports free trade and internationalism, Canada is actually an aggressive and sometimes overprotective country,” he wrote.

Specifically, Lighthizer points to the Canadian dairy market as an irritant.

“For years Canada has been operating a dairy export control system that would put a Soviet commissar to shame.”

But he spends several chapters on China and what he sees as the madness of entering into free trade issues with the enemy. He flatters China and successive US governments have made deals even as, he says, China has repeatedly violated trade laws, stolen IP and gained control of raw materials around the world.

Embedded in that message is an opportunity for Canada.

This country has the assets and power that the US needs if it wants to slow trade with China.

Trade experts say the decades-long boom in international trade deals comes with little risk.

Indeed, trade has increased since the renegotiation of the North American Free Trade Agreement. But that was at least the result of economic growth, not the new deal itself.

Back in 2016, the American economy was booming. Inflation was low and a series of tax cuts boosted growth and investment. Now, Trump will inherit a sluggish global economy that is still suffering from the lingering effects of high prices.

That could increase the potential damage from any new taxes.

“It's not that Trump 1.0 tariffs weren't bad, they were just overwhelmed by a lot of good stuff,” said Scott Lincicome, vice president of general economics at the Cato Institute, a Washington-based think tank.

During Trump's first term, Lincicome worked as a trade attorney. He says he had Canadian clients who did not want to invest in the US because there was too much uncertainty.

He expects this round of uncertainty to unfold in the same way.

“Remember how these two economies are connected,” he said. “Trying to eliminate these two economies even a little is like surgery without anesthesia.”

He says Trump's argument that free trade has been bad for most Americans is not true.

“Most of us benefit,” he said. “And for most I'm not talking about 51 percent. I'm talking about 90 percent, give or take.”

Lincicome says the problem is that the damage from free trade is concentrated in key electoral areas such as swing states in Ohio, Pennsylvania and Michigan.

“And that makes trade politics more important than economics,” said Lincicome.

He says he's clearly losing the political argument right now, but remains optimistic about the economy. And he worries about what damage might be done before public opinion turns.