LISTEN: ‘We’ve seen this before:’ Sask. business expert on Trump’s 100 per cent tariff threat

The following questions and answers have been edited for length and clarity.

Evan Bray: As you flipped through your Saturday morning readings and saw 100 per cent tariffs from Trump, did you move along to the next story? Did you dwell on it at all? What was your reaction?

Paul Martin: A little of each. These are bargaining position postures, I think. Probably most of your commentary is from other presenters, as well, saying, ‘Yeah, we’ve heard this before.’ It’s like a bargaining position, and I think a year ago, we would have been really worried about it. Now we’re not so much. We just say, ‘Okay, we’ll see how this plays out, and it’s a talking point at this point.’ But I was also taken by the language that Trump used in his Truth post that China will — I think he used the word devour — Canada or something like that; said the guy who wants to annex us. So, I mean, there is a lot of posturing and rhetoric, if nothing else, going on in these conversations. And as you pointed out, the Treasury secretary was doing the weekend tour of the talk shows in the U.S., trying to kind of explain what the President meant, and basically softened that position a little bit.

I think a year ago, industries were in and of themselves, trying to extrapolate and figure out numbers and impacts and what this means to margins and bottom lines, and do they have to restructure deals with geopolitical partners? Do those same things happen in the oil and potash industries today when these threats come out? Or was it done one time, and there’s an understanding of the impact that tariffs can and do have, but it’s business as usual on a Monday morning after a threat like this is made?

Martin: I think so. The easiest way to check is just see what the stock market does. A year ago, we would have seen a five or an 800-point move in the New York exchange. We probably won’t see anything today. I think industry has kind of moved past the posturing conversation, saying, when something starts to happen, like really gets traction or actually gets implemented, then we’ll respond. Tariffs are really kind of hard to understand, because if the Americans impose one on Canada, it feels like we’re getting hit. In fact, the charge is really against the American taxpayer or consumer. So some people will say, why do we get fussed over this stuff? It’s really a self-inflicted wound. It is to the extent, though, that it’s not immediate. I’ll give you the example of the Chinese tariffs on canola. I mean, it would be the Chinese who were paying the tariffs if they imported Canadian canola, but the price of Canadian canola did drop right away. Why? Because we had one less bidder in the market looking for our product. Why? Because China, then, if they’ve got a 100 per cent tariff on Canadian canola, it would become very expensive, they would go find an alternate market. So for us, that means our price goes down until we find another market. So, we have to go find an alternate, so there’s a gap in there. That’s why you hear the conversation in this country so much about diversifying our customer base, because we are at the end of the supply chain, if you want on the tariff. Sure, the United States pays those tariffs when they impose them on Canadian imports, but we rely so heavily on them as a market, we’re going to have a hard time finding an alternate we’re going to end up with excess supply that’s going to end up depressing prices, and until we can get our sort of house in order of getting our client list diversified a little bit, we’re the ones who will actually feel the short term pain. I remember there was a very well known Saskatchewan business guy who always had a rule that he said he wouldn’t let any customer get to be beyond 15 or 20 per cent of his revenue stream, because he said, at that point, the customer starts running my company and if they are a really good customer, and I’m getting more and more of their business, once I hit that threshold, I’d have to go talk to them and say two things, either I can’t take any more of your business, or you have to help me find an alternate customer who will expand my overall revenue stream so that you become a smaller percentage. It’s an interesting thought process, and I feel like I’m hearing a lot of talk about diversifying the customer base in the province, but not so much traffic actually doing it. I don’t talk to a lot of business people who say, ‘Hey, I’m on my way to Argentina or to China or to Japan or to Germany, looking for new customers.’ There are one or two, but I think we should see this as being a lot more part of the conversation in the province. We should be having trade missions that include not just a provincial cabinet minister or the premier, but we should have 20 or 30 business people on that mission as well.

If we don’t have diversified markets, can you talk about what options businesses and industries have, and what they are confronted with, to try to absorb or mitigate the impact this is having on their business?

Martin: You used a couple of good words there. One is to absorb. They can absorb some of it. I mean, nobody can absorb a 100 per cent, but if it’s a 30 per cent tariff, you go to the customer at the other end and say, ‘Look, your government has imposed 30 per cent (tariff) on this, I’ll split it with you. That’s one option. Option two is you just go find an alternate market. So you take that inventory that you’ve got, and you sell it to a different place where you don’t face that tariff. The third one is the business, then says, I’ll relocate. The U.S. is simply too big a market for the well-being of my company. I have no choice but to relocate; that’s Donald Trump’s strategy, and you’ve seen it with some of the automakers. For some other industries, that’s simply not feasible. You can’t move the Athabasca Basin to the United States, so we’re not going to move the uranium down there. It’s not going to be relocated. So guess what? You don’t see the big tariff on it, right? Because the Americans know that too. Same with potash, you see a lower level of threat and threatened tariff. And so the options are fairly stark. Trump is playing his card, but he wants more people to relocate down there, more factories to relocate, and he’s claiming many are doing it. I don’t know if there’s any evidence to support that, but certainly you’ve seen that thought process dominate the conversation in the auto industry, and for those in central Canada, where the automotive sector and auto manufacturing is such a big part of the industry base, no doubt, they’re really having that conversation in a big way, because those companies that produce cars on both sides of the border are already integrated. They’re already producing in the US. So for them, it’s really just a flick of the switch, isn’t it? They just shift their production to a different plant.

Prime Minister Mark Carney made an affordability announcement today (Monday), including some changes to the GST rebates. What are your thoughts on the strategy and the thought process they’re heading into? What is going to be day one of Parliament back in session today?

Martin: Yeah, a couple of things. It is purely political. They came away from this weekend retreat, and he kind of muddied the waters there with some of this talk about in his speech about Quebec, he’s got that part of the country all fired up today, but on this one, it drives home the point: affordability is the issue. This is a conversation for all of our political leadership. We’re seeing civic administrations drop in double-digit increases in their tax base and stuff, and still trying to pay lip service to affordability. Well, they are part of the problem. The Prime Minister is hearing that, because the polling is telling him Canadians are feeling the squeeze. This is what I would call a band-aid on an open wound. They’ve got much more structural and deeper issues to deal with than this, but it says to me, the politics of this is, affordability is a big issue. There’s a lot of talk that maybe Carney wants a spring election. This may be a signal that he’s testing the waters on that and sees if this pays off for him at all.