Changes south of the border – we must up our game

By MPP Toby Barrett

Given the change in administration south of the border, we in Ontario and across Canada must now up our game.

On May 18, U.S. Trade Representative Robert Lighthizer gave notice of intent to renegotiate the North American Free Trade Agreement (NAFTA) with Canada and Mexico. Citing outdated standards and regulation, Lighthizer stressed the need for higher-paying jobs in the U.S. President Trump has repeatedly stated he would tear up NAFTA. While such a move would require the sign-off of the U.S. Congress, the President can unilaterally sign Executive Orders regarding tariffs.

Trump has also voiced displeasure about our agriculture supply management system. He has slapped new import duties on softwood lumber ranging from 3 per cent to 24 per cent, having an immediate and serious consequence for our forestry sector.

These moves will pale by comparison to the border tax President Trump is touting. This would be a massive Border Adjustment Tax (BAT) designed solely to protect U.S. jobs. It remains unclear whether the target is strictly Asia’s parts suppliers, or whether Mexico and Canada would be dragged in.

The BAT program would also include a massive cut to the corporate tax rate from 35 per cent to only 15 per cent. Proposals also include a 15 per cent tax rate for all businesses, lower individual rates, a larger standard deduction for households, and a repeal of the estate tax. Under this plan, the average U.S. business will pay about a 20 per cent tax rate, after accounting for state taxes. Canada’s average combined federal-provincial rate is 27 per cent.

This spring, the federal government and many of the provinces scrambled to put together a lobbying effort to persuade U.S. states and the Trump administration to leave Canada out of these protectionist measures. Saskatchewan Premier Brad Wall offered up his explanation of cross-border supply chains. “Saskatchewan farmers buy John Deere tractors, made in Iowa, to harvest oats that are then sold to General Mills in Cedar Rapids, turned into Cheerios and exported back to Canada.”

The U.S. remains Ontario’s primary destination for international merchandise exports, representing 80.5 per cent of the total in 2015.

On the energy front, President Trump has promised cheaper energy, and has walked away from the Paris climate-change agreement. Ontario’s cap-and-trade tax alone puts business and industry at a $2 billion competitive disadvantage with neighbouring jurisdictions. US-Canada policies are going in opposite directions – minimum wage, for example – and will drastically affect the competitiveness of Ontario’s manufacturers.

Billed by the White House as the most ambitious attack on red tape since the Reagan era, Donald Trump is cutting business regulation and capping the total cost of new rules. He has signed an order calling ‘one in, two out’ for each new regulation proposed by an agency such as the Environmental Protection Agency or the Labor Department – the same department will need to identify two existing regulations to be scrapped.

If the world’s largest economy does take off, a rising tide will lift all boats, including our’s in Ontario. But on the other hand, the U.S. will launch tax cuts, deregulation, and infrastructure spending with a Buy America rider. That all makes for great opportunities for U.S.-based businesses, at the expense of others, including those on our side of the border.