Trudeau’s reward for courting Trump is a trade war over lumber

Josh Wingrove
Bloomberg News

OTTAWA, Ontario — Justin Trudeau has always played nice with Donald Trump. The refugee-hugging liberal bit his tongue, flooded Washington with envoys, feted Ivanka Trump on Broadway and relentlessly talked up Canada-U.S. ties.

It hasn’t worked.

On Monday, Trump teed off a fresh trade war by slapping tariffs of up to 24 percent on Canadian softwood lumber as battles brew over the North American Free Trade Agreement and the dairy industry. After winning praise for his Trump strategy, with Angela Merkel and others pressing the Canadian prime minister for advice, Trudeau finds himself a target — or an example.

“Think of this as the violin Trump gets to play and set the mood of the place,” said Eric Miller, a former Canadian diplomat who is now a Washington-based trade consultant with the Rideau Potomac Strategy Group. “It’s a great way to underline America First to the Europeans, Japanese and others, if you actually take a hard line with Canada.”

Neighbor: Canada is hardly a poster-child trade offender for Trump. It’s the No. 1 buyer of U.S. goods with a largely balanced trade relationship, a peaceful next-door neighbor and among the closest U.S. allies. Trudeau moderated his message, re-calibrated his domestic agenda to court Trump and even helped him dial back G-20 commitments on trade. Trump himself pledged only a “tweaking” of ties before turning on Canada this month.

Though Canada wasn’t an early Trump target and a softwood battle has long been expected, Trudeau’s government took nothing for granted. Trudeau appointed a new foreign minister, Chrystia Freeland, as his Trump lieutenant and set up a swat team in his office to manage ties. The core tenets of Trudeau’s strategy — revealed in multiple conversations with Canadian government officials — are simple enough: come to Trump’s doorstep, flatter him, court his top aides and find back-channel intermediaries.

Those brokers included Fairfax Financial Holdings Ltd. Chairman Prem Watsa, Power Corp. Chief Executive Officer Paul Desmarais Jr., former newspaper magnate Conrad Black and former Prime Minister Brian Mulroney, according to the officials. “I said that Mr. Trump had nothing but goodwill toward Canada and wished only slight changes to U.S.-Canada free trade, and that the two personalities would be entirely compatible,” Black said by email last month.

The early signs from the U.S. were positive. A Trump adviser flew to Alberta in January to preach calm to Trudeau’s cabinet. Canada’s ambassador, David MacNaughton, praised the White House, saying “they’ve been delightful to deal with.”

But it was early days. During one visit, MacNaughton arrived to a White House without staff, furniture or a full complement of televisions, according to two officials. He asked for a coffee and was told the White House didn’t have a coffee maker yet. So Canada took that early optimism cautiously.

Even before inauguration, Trudeau had been dispatching chief-of-staff Katie Telford and principal secretary Gerald Butts for secret meetings with Trump aides including strategist Stephen Bannon, son-in-law Jared Kushner, chief-of-staff Reince Priebus and economic adviser Gary Cohn.

Rarely a day has since gone by without a Canadian minister in Washington. Trudeau’s office keeps an Excel spreadsheet of congressmen and governors, systematically aiming to meet each one to triangulate Canada’s case on trade — all while saying they live in fear they’ll wake up to a Trump tweet aimed north, as they did on Tuesday.

Even Trump rivals are being lobbied, to be safe. Marc Garneau, Trudeau’s transport minister, met with Jeb Bush last week at a Panera Bread outlet in Florida. “He said, ‘you’re doing exactly what you need to be doing,’” Garneau later said.

The Canadians have placed particular emphasis on the president’s daughter. When Trudeau visited the White House in February, Telford suggested holding a round-table of women business leaders with Ivanka Trump. She joined Trudeau again a few weeks later at a Canadian musical on Broadway — one, incidentally, based on the story of Canadians welcoming American travelers during the Sept. 11 attacks. Trudeau’s officials privately say Kushner and Ivanka Trump are their go-to White House officials. Merkel is now wooing the first daughter, too.

“You’re trying to build a relationship from scratch,” Richard Boucher, a senior fellow at Brown University and longtime U.S. diplomat, said in an interview last month. “It just shows how back to square one we are — everyone is — with this president.”

Trump announced the countervailing softwood duties Monday to conservative media outlets, a key conduit to the base of Trump’s America First message. A week earlier, Trump blasted Canada’s system of protectionist dairy quotas — even though the U.S. still sells far more dairy to Canada than it buys.

In a Bloomberg interview last week, Trudeau said Canada is not “the challenge” for U.S. dairy producers — and that he finds Trump more flexible than some world leaders. “He will take a different position, if it’s a better one, if the arguments win him over,” Trudeau said.

Speaking in radio interview Tuesday, the prime minister called the U.S. softwood spat “nothing new.”

There are reasons for optimism. Trump’s bark on trade is often worse than his bite, and some expected lumber duties to be higher. Monday’s move was largely predictable — “the rerun of a movie I have seen too many times,” former Canadian ambassador Derek Burney said. Canadian lumber stocks rallied in early trading Tuesday.

Meanwhile, Trump remains cool to Paul Ryan’s border-tax proposal, which would be devastating to Canada. A softwood standoff isn’t surprising — Trudeau got along famously with Barack Obama, but couldn’t extend a deal that expired in 2015. But the manner of its announcement is sure to rattle the Canadians. Commerce Secretary Wilbur Ross’s statement on Monday night wrapped lumber, dairy and Nafta all into one.

“It’s been a bad week for U.S.-Canada relations,” said Ross, a friend of both Mulroney and Freeland. “This is not our idea of a properly functioning free trade agreement.” Despite the U.S. benefiting from the status quo — Canada often has a trade deficit with the U.S. outside of oil, its lumber makes U.S. homes cheaper, and the dairy market is tilted in the U.S.’s favor — trade tensions are near a boiling point.

It’s also a cautionary tale for other world leaders such as Merkel, Theresa May and Shinzo Abe who have worked hard to strike up a good relationship with Trump after an election campaign that stirred fears about the president’s commitment to free trade and the western military alliance.

Canada pledged legal action while criticizing the “unfair and punitive duty,” saying it will raise the cost of U.S. homes. It’s also threatening to pivot away, responding to duties by highlighting efforts to sell more lumber to China.

“Canada will continue to press their American counterparts to rescind this unfair and unwarranted trade action,” Freeland and Natural Resources Minister Jim Carr said Monday night in a statement. “We remain confident that a negotiated settlement is not only possible, but in the best interests of both countries.”

Canada looks set to stick to its play-nice strategy, and Trudeau had fair warnings on all this. His father, former prime minister Pierre Trudeau, famously described Canada-U.S. relations as “sleeping with an elephant,” with Canada “affected by every twitch and grunt.” This elephant is now wide awake.