US Trade War Has Already Been Won.

A clear goal of President Trump is to return ALL arbitrage based manufacturing back to the USA.

Canada has, for decades, dangled a single hook in front of the manufacturing sector.

With a GDP productivity rate roughly 50% per capita lower than the United States, Canada has no specific appeal from important global manufacturing powers. A series of government policies designed to maintain an emphasis on labor needs rather than business (government willingness to tolerate nationwide shutdown of most material shipments at ports, rail, and eventually packaged mail deliveries, for consecutive months in 2024, by a few thousand highly paid union workers) makes it abundantly clear that private business is of little interest to Canada at large.

A relatively unskilled and unmotivated workforce, lacking meaningful STEM education, is only of limited utility to international employers. Any Canadian with important skills is almost instantly poached by US or international employers, where upward mobility and economic rewards are superior.

Canada operates as a totally closed economy in sectors defined by the government as strategically important, including finance and full service banking. Banco Santander, a global banking giant (18th largest by assets, 50% larger than Royal Bank of Canada) and forecast to generate more than $65 billion US in 2025 revenues, has been stymied on efforts to obtain a full service Canadian banking license for more than a decade. Canadian banking regulators throw up a byzantine and ever-shifting series of roadblocks specifically designed to prevent profit reducing foreign competition and maintain a status quo that maximizes the market share of the Canadian banking monopoly, at the expense of both consumers and international manufacturing and service based customers.

Domestic national media providers, required to be Canadian controlled, very poorly inform the local population as to the economic lack of balance. It is profoundly sad that Canada, a major producer of oil and natural gas, lacks the domestic refining capacity to meet national needs. Refined fuel is predominantly imported from the United States and US condensates are required to be blended into the heavy bitumen produced in Alberta so as to permit movement by pipeline. Were US condensates to be unavailable to loosen this sludge, Alberta bitumen would stay exactly where it is.

Canada talks up nickel exports to the United States, while failing to indicate that Indonesia now accounts for more than 70% of global production and can turn up that production rate by an additional 10% at the drop of a hat. Canada trumpets steel production, while failing to acknowledge that Canada represents a net importer of finished steel. Canada touts forest products while failing to acknowledge that Canadian lumber shipments to the US have been declining for years, while US domestically milled lumber, supplemented with Chinese production, has been increasing apace.

This seems a harsh, unpalatable assessment for those resident or invested in Canada, reality can be harsh. Trump is largely correct on one salient point; for everything that Canada produces, the USA produces an equivalent product. I am specifically aware of a Canadian window and door producer, a manufacturer employing more than 700 Canadians, with 85% of output destined for export to the United States. On the opposite side of the Canadian border, in Minnesota, sits a competing, American, window and door manufacturer with 500 employees that must accept a lower profit margin and far lower sales as a result. That Canadian producer exists, uniquely and directly, for no other purpose than to sell Canadian products to the US market, to take away US jobs, to remove US dollars from America and repatriate them to Canada.

In the medium term, the US needs nothing from Canada; in the short term, the US risk from tariffs is primarily dislocation of supply chains.

Lacking productivity, lacking a high quality educated and desirably skilled workforce, lacking an appropriate balance of private business to government bureaucrats, the ONLY carrot that Canada can dangle in front of manufacturing or service oriented businesses is a promise of access; access to the US consumer and producer marketplace..

Canadian national economic policy, such as it is, operates under a form of arbitrage and the premise is as follows: “Canada is not a a cheap place to produce goods, not a low tax center, not efficient in terms of transportation or infrastructure, not favorable towards business, but our major cities are all, more or less, within 100 miles of the US border and we have easy access to that market. We are your US proxy. Plus, our currency differential mitigates many of the higher costs you will pay by locating your plants in Canada“. That is the Canadian business proposition, nothing more.

The United States has decided to close one of the two major arbitrage loopholes permitting Canada to maintain what manufacturing and export opportunities that exist; free access.

Canadian pundits speak of the interconnectedness of Canada/US manufacturing, autos primarily. Canadian chambers of commerce brag up that an auto part is produced in Canada, shipped to a Michigan parts maker, where said part is added to another part and returned back to Canada for further assembly. In total, the Canadian industry uses a talking point that a typical automobile assembly requires a total of 7 cross border trips to be completed.

What nobody in Canada has pointed out is that this isn’t a good thing at all, it is horribly inefficient, terribly expensive, extremely time consuming. From a globally competitive perspective, the US auto industry would be far better served locating ALL of their parts manufacturing and assembly in one or two domestic locales, the USA. The ridiculous 7 cross-border trip logistics expense, each also costing a toll on one of the only 2 major access points between Canada-US would decline, likely sharply.

In the medium term, after a period of adjustment, relocation away from Canada by American automobile producers would result in a higher overall profit margin for producers and improve supply certainty.

The prospect of tariffs has immediately resulted in a flurry of capital decisions by foreign firms, into the United States.

The media and the public at large misunderstands the purpose of US tariffs. They are, at the simplest level, an admission fee, a cover charge to enter a white hot night-club. If you are willing to pay that cover charge, you get in. If you are already in the club premises, then you get to stay. Fail to come up with the cover charge and you don’t get in.

Glossed over by domestic Canadian media, Honda, the day foreign auto tariffs were declared by the Trump administration, Honda announced that a 210,000 vehicle, per annum, production facility would be built directly within the United States. Thousands of production jobs will move from Guanajuato MX to Greensburg IN. The Honda announcement is the first; it will not be the last.

Taiwan Semiconductor has announced a $100+ billion capital investment to increase chips in expanded fab in the United States. Apple has announced a domestic manufacturing push with a value above $500 billion. Multiple other capital plans from private industry, announced within just the first 40 days of the Trump administration, now exceed $1.7 trillion US, GREATER than the entire GDP of Canada. These are high value capital investments in high margin manufacturing. Canada, in contrast, has yet to announce a single manufacturing win of even modest consequence post-Trump election.

For decades, I have indicated that Canada has squandered what few strategic advantages were available at the domestic level. Resource extraction, arbitrage manufacturing and agricultural arbitrage production (shipping of live hogs in Canada to the United States, “finishing”,) are at-risk businesses when the US market requires an admission fee. Sadly, for Canadian hogs, each and every time tariffs place the arbitrage ag trade at risk, a number of hog barns in Canada catch fire, livestock trapped inside, to be covered by insurance settlements.

Any Canadian or Mexican manufacturing company, small, medium or otherwise, will need to relocate some or all of their manufacturing directly in the United States if they are unwilling to pay the tariff. This drains private sector jobs away from Canada and Mexico to the United States.

Canadian businesses must be prepared to accept far lower profit margins on sales to the US in order to maintain order flow. Alternatively, Canadian private businesses might need to relocate production plants to the United States. The domestic government of Canada cannot permanently provide economic supports to impaired exporters because the national economy is too top-heavy, employment wise, with government workers. The stool has been kicked away from Canada.

Domestic jingoism by Canadian media on counter tariffs and “buy-Canadian” is laughable. US exports to Canada represent just 1.5% of US GDP. In terms of overall significance, Canada could disappear off the planet and the foregone export revenues by US manufacturing would be made up in about 1/2 a year, at a 3% annualized GDP rate of growth. Canadians don’t produce boxed breakfast cereal, don’t produce API pharmaceutical compounds, don’t produce washing powder for laundry or bar soap in a commercial volume, primarily imports hops for beer production and relies almost exclusively upon imported refined fuel in the key manufacturing/transport provinces of Ontario and Quebec.

Intend to shave with a Canadian razor, drink tap water purified by Canadian chlorine, brush your teeth with Canadian manufactured toothpaste, apply Canadian produced deodorant or wash your hair with Canadian produced shampoo? Bon chance.

Boycotting US food products? Go ahead, eat Chinese produced tinned goods or produce, made from gosh knows what, grown God knows where and no with way to verify quality or safety. You do that; even the Chinese won’t, if given an option.

Premier Doug Ford of Ontario opines of the ability of Ontario to cut off electricity sales to a smallish number of US states. This would be a temporary inconvenience for America, who is already preparing to ramp up about 100 mothballed electrical generating stations and has an abundance of natural gas and coal fired generators that could fully supplant Ontario power within a few short months. This entails a bit of time, some capital and annoyance.

What premier Ford doesn’t take into account is that the United States could, in response, ban finished gasoline, diluent and diesel exports to Canada, completely breaking the entire Canadian economy, including the shipments of Alberta bitumen, in a matter of hours to days, and that would be permanent. Lacking diluent, Alberta sludge is too viscous to move via pipeline. Lacking momentum, the high sulphur content of that sludge quickly destroys the steel pipeline where it is trapped.

Should Ontario cut off electricity sales to the US, Americans will then take the appropriate steps to forever de-risk Canada from the manufacturing chain, and Ontario, as an economy, will be done. There is no effective “nuclear option” for Canada to play and what premiere Ford proposes is a metaphorical “charge of the light brigade” to certain economic death. If Canada attempts to do something big, they get to try it once, and never again. The appropriate US response to a nuclear option will be to cut Canada loose from further export opportunities to the United States; with the likely result for Canada being the quick devolution to third world economic status while attempting to maintain first world social entitlement expenses and having to pay for the most expensive residential real estate on the continent. It is potentially that bad for Canada, far worse than a couple of percentage points of GDP reduction posited by Canadian banks, who themselves have too much skin in the game to report honestly.

Complacence and a series of leftist governments, federal and provincial alike, that fostered an entitlement society, hollowed out Canada’s competitiveness on the global stage long ago. What remains is nostalgia of past glories. When prime minister Trudeau makes a direct plea to president Trump and declares Canadians to be a “polite people”, that is hope to maintain a status quo, not an acknowledgement of a change in the business environment.

One can be polite and still be an inveterate systemic abuser, they are not mutually exclusive.

In 2022 I commissioned a boundary survey of a farm property in western Canada. As it turns out, an adjacent farmer was cropping a portion of my land, almost 20 feet of width on a 10,000 foot long parcel and had been been doing so for years. He had gone so far as to start a tree-line on my land to ensure that he would forever be able to farm that strip for his benefit, assuming I would be none the wiser, because he presumed we had a collegial relationship and many farmers don’t wish to pay a survey expense. Just under 5 acres of my class 1 property was generating free revenue for that farmer, revenue that came directly out of my pocket. So, I took the appropriate, legal, steps to address it.

That farmer was previously always friendly to me, polite. And why not; thousands of dollars annually were going directly out of my pocket, directly to his. Why wouldn’t he be polite to me, to perpetuate stability, to free-ride off my land? Now, things are not so polite, but they are quite clear. I WILL be earning my revenue, on my land, in the coming years, land that I dutifully pay taxes on. Those trees are now mine, and I relocated them to other parts of the farm.

The Canadian governmental reaction to American requests for stronger border protection fall under “polite, inveterate systemic abuser”.

In response to American pleas to stop drug flows, Canada only noted that few drugs were ever apprehended. The local implication was that no drugs come from Canada, when a compelling narrative from “Five-Eyes” partners (a multigovernmental intelligence sharing service) suggest certain parties within the Canadian border systems are implicitly letting drugs through, in large quantities, without apprehension, a blind-eye. One does not catch criminal behavior when one does not look. Criminals don’t jump up and down in front of border agents, shouting “I have drugs in my truck, come and get em!”

Recalcitrant politicians in Canada then announced the temporary leasing of 2 helicopters and the addition of a single, bureaucratic, non front line hire, to go before US officials and declare that all is well. As a general rule of thumb, a helicopter can fly about 250 miles before refueling, roughly 2.5-5 hours of flight. Canada has 8891 km of border with the United States. Does the additional of just 2 helicopters seem a reasonable response to a request for full border monitoring? If one is going to stick their middle finger in the air at a reasonable American request, why even bother with 2 helicopters, why not just stick with 1? After all, two are as wholly inadequate as one, given the amount of area to be monitored. Is the Canadian response, politely framed, to be: “we are doing exactly 2x more than the absolute bare minimum, so this isn’t just a token gesture.”

Furthermore, when one goes onto the Canada Border Services website to peruse the, presumably, wave of front line required positions to be filled to meet US pleas, all that is offered is a resume submission list with no specific job position on offer and no declaration of any positions now, or to be, made available.

The Canadian government reaction to American pleas for improved drug interdiction is clearly posturing, an inconsequential reaction to what is considered to be little more than a temporary, nuisance, objection by the United States. To date, as of this post, not a single incremental border service agent has been hired to patrol the front lines, intercept potential drug flows or inspect trucks. The domestic border agent training school can facilitate a total of 600 trainees annually and is not being expanded. There will be no more agents on the front line, post US request, than one expects to be created during a normal year of attrition. And this is the Canadian model, to be caught flat-footed in a half-truth, with a nebulous promise to change, to improve, only then to kick the can down the road.

No wonder the USA has lost patience. I do not think, nor does anyone, that the tariff issue is fully tied to drugs, but Canada refuses to be held to account on anything, so it must start somewhere. Why not pull on the border thread?

Somebody in the United States government might have actually uncovered some leverage needed to force Canada to change, or potentially be a less sovereign nation, a 1908 border treaty.

President Trump has repeatedly brought up a point that Canadian borders with the United States may be invalid and cites a 1908 treaty. Canadian officials then become very, very, quiet and note to the media that Canada’s border treaty was ratified and leaves it at that. A few history experts in Canada were promptly trotted out to declare that the treaty was, in fact, ratified and no further questions are asked. Which would then normally bring up a sensible follow-up from interested parties:

“ratified by whom, and what are the terms of the treaty?”

As it turns out, the border treaty was NEVER ratified by the Canadian government, because Canada had no part in the treaty. The 1908 border treaty exists between the United States and Great Britain, as Canada, despite being a supposedly sovereign nation since 1867, evidently lacked the legal authority in 1908 to engage in border treaties with the United States.

The potential problem, maybe a massive one, is that Canada, in 1908, was deemed to be a colony of Britain, not legally in charge of its own border. The colonial determination persisted in Canadian law until 1950. This is akin to a landlord-tenant relationship, with Britain having legal dominion over the lands and Canadians living on it, or, more accurately, “parent” and “minor” status, with Great Britain acting as the legal guardian, or parent, Canada being the minor, or child.

Can a child be held responsible for the legal affairs of a parent? Can a child be held accountable for a contract signed off by a parent? Can a parent enter into a contract on behalf of a minor and expect the courts to uphold the validity of the contract? Can one of the 2 treaty signatories, the US, declare the treaty to be invalid because the entire basis for engagement was one of bad faith, whereby the parent (Britain) was forcing a child (Canada) into said treaty without unbiased, independent, representation? Even the most poorly trained lawyer will determine the potential for a problem here.

Were the United States decide to pull on this thread, they could declare the current borders of Canada to be invalid per the 1908 treaty. The argument could be made, potentially with merit, that the presently established borders of Canada and the United States are invalid, because Canada, at the time, lacked the legal authority to set those borders; alternatively, that Great Britain had no legal authority to arbitrarily set borders with the United States on behalf of Canada, a dependent child calling itself a country, or both.

Americans have at least one ace in their poker hand at this point, possibly several, because the treaty itself exists between the United States and Great Britain and Canada had no part in the matter. The treaty was ratified in the United States and Britain. When Canada declared independence, sovereignty, in 1867, that is supposed to represent a form of emancipation, so either Canada was emancipated, sovereign, in 1908, and legally able to negotiate on its own behalf, regarding borders, or they were not. Any US lawyer worth their salt will be able to persuasively argue that Britain lacked the authority to set borders on behalf of Canada, as Canada was supposedly a sovereign nation at the time. Alternatively, any US lawyer worth their salt will be able to persuasively argue that if Canada lacked the legal capacity to set borders on their behalf, since the treaty was with Britain, then Canada was in fact not fully sovereign at the time of the treaty, and on that basis, the treaty is invalid (a bad faith negotiation). There are no ifs, ands or buts about it, this has “mess” written all over it.

There are other issues. A border commission has existed since the time of the treaty. Treaty clauses required a complete survey of the border lands. A survey was paid for, not by Canada, but by Great Britain on Canada’s behalf. A British surveyor was engaged to do the work. This leads to the potential for a conflict of interest, of bias.

Even without bias, the legality of a third party country, Great Britain, imposing a border upon Canada with the United States, as a matter of convenience, in the 20th century; then hiring a British surveyor to complete the survey, implies that Canada had no legal standing to engage in the treaty with the United States on its own. If Canada did not, at the time, have the legal authority to act on its own behalf, then the validity of the entire treaty may be questionable.

Failure to comply with terms of the treaty also create potential for invalidation. Clauses exist that in practice, require Canada to maintain a 60 foot + permanently cleared area, a demarcation from the US border, over the entirety of the boundary, 8891 km. That was never done. There are a few sections, along major road arteries crossing between the US and Canada, where this has occurred, but this accounts for just a very small area, a few hundred kms at worst, 1,000 km at best. Most of the entirety of the border, thousands of kms of land, has no demarcation whatsoever, no clearing, no physical indication. That is a major problem, because Donald Trump, a long time real estate developer, understands that failure to comply with a contract, even in part, can serve as grounds to invalidate a contract in full. The border treaty is not a contract, but there are terms and conditions nonetheless.

Canada desperately wants a US border challenge to “not” be an issue, so they try their upmost to avoid comment on it, not to the media, not to the public, perhaps not even to other government departments.

The outgoing prime minister of Canada did stammer, when pressed, that the 1908 treaty is not a problem, because the Canadian constitution of 1982 supersedes the 1908 treaty.

His statement is poor obfuscation. Was the ever US consulted on the treaty in 1982? Did the US assent to a treaty change/update? How in the heck does a Canadian constitutional change affect a treaty between Great Britain and the United States? It appears that the former prime minister attempted a misdirection, an equivocation, because the 1908 treaty was never amended/codified to include Canada as a signatory.

And that is one of the many global issues with the “Canadian” way of doing things. Being “nice” doesn’t equate with being precise. Being “relatable” is not equivalent to being reliable. A border dispute has nothing to do with niceties and manners; it has everything to do with legalities spelled out in clear and unequivocal language.

And as a result, if the United States so chooses, this can become a very large issue. No prior American government has seriously tested the validity of the treaty for about a century, but that, in of itself, does not obviate a potential problem; it simply means that a “collegial” relationship was in force.

Under a tariff access model, the future does not belong to Canada.

Resentment of the US business model will not serve Canada well and no amount of government short term subsidy will change that. The entire Canadian economy needs to orient itself away from half-handed arbitrage, accept a permanently lower level of profitability, or both. The world gets it, Canada does not. Global investors have done the math. Canadian investors have not.

For lack of a better analogy, the current American administration is making efforts to prevent previously polite Canadians from further cropping US lands. If Americans prove to have the ability to accept a dislocation interval, which is the only pushback, some time to adjust, then the business model will forever change.

An omnipresent risk of tariffs on US sales will be enough to dissuade exporters from setting up shop in Canada specifically to access US markets.

Capital decisions by corporations rely upon certainty, not hope. Businesses intending to sell in the USA will need to set up shop directly within the US border, proxy markets won’t cut it. So a waiver or ending of a tariff war will not resolve Canada’s per capital GDP decline (not just relative to the US, but absolutely); rather, it will just stretch out the economic pain, Canada’s economic lethargy, over a longer duration.

Uncertainty on US market access and reduced profitability will lead to existing manufacturers and exporters, within Canada, to defer the purchase of new equipment, to let current systems run down until no longer useful, prior to relocation in the United States. Economic ruin starts slowly, and ends quickly.

The Gnostic Portfolio practices what it preaches, always has and always will.

I do not invest in arbitrage businesses. I will not support arbitrage economies.

Canadian businesses need to focus upon running good business models, rather than existing solely to free-ride upon the prospect of US access and then cry out for domestic government bailouts when the arbitrage profits are removed. An inability to generate sufficient profits to pay the access toll (export tariffs) will remove Canada from serving as the economic, leftist, “wing-man” of the USA.

Without the profits generated by mooching off the USA, Canada as a nation, lacks sufficient private business profitability to support the current levels of social entitlements. What remains will be primarily government employment, unproductive, unsustainable.

This is no way to run a business, no way to run an economy, no way to run a society. Canadian politicians, belatedly, are declaring this to be an existential threat. The entire economy of Canada is at risk of implosion, should export tariffs to the USA persist.

Foreign access to US markets, for free, is/was a privilege; it was never a right.