Trump's tariffs and insults target North Carolina's top trade partner

President Trump: 'We have a big trade deficit with Canada.'

President Trump talks about the trade deficit between the United States and Canada.
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President Trump talks about the trade deficit between the United States and Canada.

With tariffs on Canadian aluminum and steel and harsh words over the weekend for the Canadian prime minister, the Trump administration has created new tensions with North Carolina's top international trading partner.

North Carolina exported $6.6 billion worth of goods to Canada last year, more than the value of goods it sent to the next two top customers, Mexico and China, combined, according to the U.S. Census Bureau. Including services, tourism and other investments, an estimated 247,500 jobs in the state are supported by business with Canada, according to the Canadian government.

In fact, North Carolina has a trade surplus with Canada, which exported $3.3 billion in goods to the state last year.

Free trade between the U.S. and Canada goes back to the late 1980s, with an agreement that predates NAFTA, the North American Free Trade Agreement. Open trade between the two countries has become second-nature, something many people take for granted, said Scott Lincicome, an international trade attorney in Washington, D.C., and a visiting lecturer at the Duke University School of Law.

"We have had free trade with Canada for longer than a lot of people have been alive," Lincicome said in an interview. "You don’t even think about shipping something to Toronto or sourcing something from Canada.”

Now that relationship has become more uncertain, after Trump tweeted that Canadian Prime Minister Justin Trudeau is "dishonest & weak" following a summit of world leaders to discuss trade agreements.

The crux of the disagreement between the two leaders is over the Trump administration decision to enact taxes of 25 percent on steel and 10 percent on aluminum imported from Canada. The administration initially indicated it would exclude Canada from tariffs meant to protect the country's steel and aluminum industries, then applied them to Canada, Mexico and the European Union on June 1, on the assumption that imports from those countries had helped weaken the U.S. ability to build arms and equipment for the military.

Canada objected immediately and proposed $16.6 billion in tariffs to go into effect July 1 on a long list of exports that in North Carolina were worth $640 million last year, including iron and steel products, lawn mowers, herbicides and ball point pens.

The retaliation to Trump's tariffs concerns the N.C. Chamber of Commerce.

“Canada is North Carolina’s number one customer," Gary J. Salamido, the group's vice president for government affairs, said in a statement Monday. "President Trump’s proposed tariffs would be a harmful barrier to N.C.’s exporters and business community, and we would urge the administration to seek ways to preserve and strengthen the critical relationship between our two countries.”

Nadia Theodore, who heads the Canadian consulate in Atlanta, defended the retaliatory tariffs in an interview on Atlanta public radio station WABE on Monday, calling them “completely reciprocal" and justified.

“Will it have an impact? Absolutely it will,” Theodore said. “Canada is a trading nation, and we really, truly believe imposing unfair and unjust tariffs on a neighbor, on a partner, on an ally will never win."

In an interview later, Theodore said both Canada and North Carolina stand to lose if the two countries can't work out their differences.

"Canada and North Carolina, our relationship with regards to trade is balanced, it’s reciprocal and it’s mutually beneficial," she said. "We have to get through this, because if we don’t then it will be to the detriment of both of our economies and to the detriment of our workers at the end of the day."

Michael Walden, an economist at N.C. State University, doesn't think a trade war with Canada is inevitable or even likely. The salvo of insults over the weekend, which included Trump adviser Peter Navarro saying there was a "special place in hell" for foreign leaders who stab the president in the back, are more rhetoric than a true indication of the relationship between the two country's leaders, Walden said.

“I think this is part of Trump administration tactics — be aggressive, be bellicose, be finger-pointing, but then to compromise," he said. "I think there will be a compromise on this within months.”

Lincicome agrees that the two countries are a long way from a trade war, but says the words from the Trump administration aren't helping. They make resisting the U.S. on trade more politically popular in Canada, as Canadians feel bullied and even Prime Minister Trudeau's political rivals come to his defense.

The problem with even trade skirmishes like the one between the two neighbors is that they begin to undermine the predictability that investors and business people crave, Lincicome said. That uncertainty could seep in to long-term investment decisions that will hurt North Carolina and its largest trading partner.

“These are the types of unseen harms that we trade wonks warn about," he said.

Agricultural products such as pork and tobacco might come to mind when people think of North Carolina exports. But the state's biggest exports in terms of dollar value include medicines and pharmaceuticals. Sam Taylor, president NCBIO, the industry's trade association in the state, said a trade dispute with Canada is worrying.

"We are always concerned when economic and trade policies create the potential to limit access to therapies that our companies develop and manufacture," Taylor said. "And we hope that Canada and the United States will find a mutually agreeable solution to this impasse so that the access of our patients in Canada to these therapies will be not be impaired unnecessarily.”

Here are North Carolina's top exports to Canada in 2017, according to U.S. Census Bureau:

Medicine, in dosage: $420 million

Motor vehicle parts: $309 million

Engines and turbines: $283 million

Pharmaceutical products: $280 million

Tractors: $277 million

Optical, medical & precision instruments: $271 million

Plastics and plastic articles: $247 million

Trucks: $199 million

Paper and paperboard: $144 million

Iron and steel alloys and semi-finished products: $141 million

Richard Stradling: 919-829-4739, @RStradling