President Trump has announced tariffs of 25% on all imports from Canada, except for oil, where the tariff is only 10%. Some of President Trump’s musings also include the idea of an economic war which will lead to Canada begging to join the US as the “51st State”.
Canadian politicians have responded by counter tariffs, exposing their lack of imagination. In such a trade war, Canada cannot win.
An alternative approach would be to build Canada’s domestic economy.
- Develop Natural Resources.
There 493 resource projects, worth $572 billion which are held up by the approvals process. If the approval process can be reduced (by law) to 4 years, then these projects can proceed (to see the effect on the economy see: https://galactic-hero.com/2018/09/18/the-cost-of-opposition-to-resource-development/ ). This would increase GDP growth significantly. The higher growth rate may not be sustainable in the long run, but will represent Canada recovering lost ground under previous systems.
- Develop Mega Projects
Canada has been built on mega-projects
- Canadian-Pacific Railway (1875-1885)
- Lawrence Seaway (1951-1952)
- Trans-Canada Highway (1950-1962)
- James Bay Hydroelectric Power Station (1971 start)
An appropriate mega-project for today is to build 10 CANDU nuclear plants. Total cost is in the range of $120 billion (estimated from Economics of Nuclear Power, 29 September 2023 World-Nuclear.org)
Advantages include:
- This can be seen as part of the move to “Net Zero”
- It will use only Canadian technology
- Canada is the world’s second largest producer of uranium, so these plants will not be dependent on foreign suppliers (unlike solar panels from China)
- By building each plant to a common plan, the 10th will probably cost less than half the first.
- It will displace fossil fuel use within Canada
- More fossil fuels can be exported.
- The US may have difficulty getting uranium (world’s no. 1 producer is Khazakhstan).
Financing can be provided by cutting the capital gains tax on Canadian sourced capital gains income to 50%, while capital gains from other countries be taxed at 100%.
- Canada’s foreign investment is about USD 1.7 trillion, so the pool is large enough to finance the resource/mega projects.
- Such a change to capital gains tax will result in much of the capital being repatriated to Canada (assuming the resource/mega projects provide good investment opportunities)
- If a significant amount is repatriated, then Canadian stock markets will rise, while US and other stock markets will fall.
These schemes will boost Canadian GDP, increase GDP growth rate, provide many well-paid jobs, increase tax revenue, decrease the budget deficit and provide funds for social programs, education and health.
On the other hand, the US stock markets will fall, the US dollar will decline. The overall effect is that Canada will prosper relative to the US and will win the economic war.