A diplomatic solution is needed to stop a crippling tariff on Canadian imports to the U.S., and a possible threat to the Volkswagen plant in St. Thomas now under construction, said political and busin

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A diplomatic solution is needed to stop a crippling tariff on Canadian imports to the U.S., and a possible threat to the Volkswagen plant in St. Thomas now under construction, political and business observers say.

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U.S. president-elect Donald Trump’s threat of a 25 per cent tariff on all goods from Canada entering the United States poses a unique challenge to Canadian political and business leaders.

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The tariff is a punishment unless Canada and Mexico end the flow of fentanyl and illegal migrants to the U.S., Trump has said.

The reality is, there is not a flow of either of those things from Canada.

For the London region, the stakes are high, as tariffs may deal a severe blow to local industries.

“We are not the problem, but we have to give him something that looks like he solved a problem that does not exist,” said Brendan Sweeney, director of the Trillium Network for Advanced Manufacturing, a manufacturers advocacy group.

“This is about being creative about diplomacy rather than policy.”

Trump takes office Jan. 20 and has warned tariffs against Canada, Mexico and China will be one of his first acts as president. The current U.S.-Mexico-Canada Agreement (USMCA) on trade expires in 2026. It took effect in 2020 and ensured trade is largely tariff free between the countries.

“We are not the target, China and Mexico are and I hope cooler heads prevail,” Sweeney said.

“(Trump) has to appear to get something. We have to make him look like he got the best of us, make him look good.”

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Sweeney downplayed concerns a tariff may cause Volkswagen to shift its electric vehicle battery plant from St. Thomas to a U.S. site. A $7-billion investment is a “long-term” strategy and not dependent on tariffs, he said.

“The odds of planning this investment without having considered this, are low. They consider that when they make this scale of an investment,” Sweeney said.

“I think, at some point, we have to cut through the bluster and do business like grownups.”

The St. Thomas Volkswagen plant, operating under its PowerCo subsidiary, is scheduled to open in 2027 with 3,000 workers making batteries for Volkswagen vehicle assembly plants in South Carolina and Tennessee. 

Andreas Schotter, professor at Western University’s Ivey business school and the Vienna School of Economics and Business and an expert in international trade, has suggested the area plant may be at risk.

But the Canadian government already is working with elected officials in the U.S to assure them any concerns will be addressed, said London North Centre Liberal MP Peter Fragiskatos.

“We have to take this threat, the possibility of a 25 per cent tariff, seriously.  We can be confident we have been through this and emerged stronger,” said Fragiskatos of the last round of USMCA talks.

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The Canadian ambassador has been “building relationships” with U.S. politicians “regardless of party” just as she did when Trump was first elected, he said. 

“We did it before; we will do it again.”

The pitch to U.S. officials is high tariffs will hurt the U.S. economy by driving up prices south of the border, Fragiskatos said.

“We have to build on existing relationships and create new ones with American senators, congressmen. It will have to materialize that way,” he said.

“We will make clear the benefits for both our economies.”

This year, Canada will export four million barrels of oil to the U.S. and much of the eastern U.S. is powered by Canadian energy. Closer to home, engines from the Ford plant in Windsor power U.S.-made trucks, many of which may be bought by Trump supporters, Sweeney said.

There is $3.6 billion in daily cross-border trade between the countries and nearly nine million U.S. jobs depend on trade between Canada and the U.S., Schotter has stated. Those sectors include manufacturing, agriculture, energy, financial services, transportation and retail sectors. More than 30 U.S. states count Canada as their main export market.

“We will engage with them, but I am cautiously optimistic,” Fragiskatos said.

About 75 per cent of Canadian exports go the the U.S.  

ndebono@postmedia.com

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