Beneficial Exchange: The Simple & Effective Way for Governments to Support Canadian Business in Fighting Tariffs

It's effective, efficient, and has maximum impact with minimum waste along the entire Canadian supply chain. Remember the old slogan: Nothing happens until a sale is made.

It may not yet be clear to Americans just what a massive change in opinion has taken place in Canada in the last weeks since Trump started making jokes about Canada as the 51st state.

I have never in my life seen this level of unity in Canada, and real anger. To anyone who’s acting like this is no big deal, Canadians are very aware of everything that is happening in the United States - the continual and shocking barrage of illegal actions by an administration that is dripping in corruption, enabled by weaklings and mindless sycophants.

The general vibe of the discussion is that of a low-rent hood coming into your store and saying, “Nice little place you got here. Sure would be too bad if something happened to it.”

To Americans who want to say that tariffs or Trump’s “territorial ambitions”are a “distraction” they absolutely are not. Trump has made it absolutely clear that he wants the US to annex Canada and the extent to which many Americans have reacted with a shrug and a “Why not?” or late-night comedians being glib about it.

Canadians appreciate it about as much as people in Europe would have appreciated German entertainers in the 1930s talking about how funny it would be if Germany invaded Poland, or Russians joking about invading Ukraine.

Canada is not facing tariffs. The President who renegotiated NAFTA and renamed it USCMA has started an unprovoked trade war with Canada.

These should be seen for what they are: illegal sanctions, being imposed for the stated purpose of subjugating an ally. These sanctions are illegal. Threatening to annex Canada is illegal. These are violations of both international law, and it is a crime under U.S. Law, and it is against an ally that contributes hundreds of billions of dollars to the US economy every single year.

This is an act of financial and economic warfare towards a sovereign country with the goal of changing its leadership, that is a state-sponsored coup.

The Trump administration and its lackeys are misleading Americans, and the world by falsely painting Canada - Canada - as a threat to the U.S., and one of the ways to do this is to lump Canada and Mexico together as being equivalent, while also ignoring that the U.S. is far greater source of criminal activity, especially criminal financing - than the other two countries combined.

Mexico has made it very clear that the money that is fuelling the drug trade, and guns are American. Both Mexico and Canada are agreeing to play along with the U.S. in an apparent attempt to placate the administration and avoid tariffs.

This of course, this pricy piece of political theatre has the unfortunate effect of not only handing the Trump administration a PR victory, because it appears to vindicate the false accusations.

So, Mexico is dispatching 10,000 troops to the U.S. Mexico Border in order to stop fentanyl and migrants. Canada has also agreed to a stronger border plan.

To put the amount of fentanyl from Mexico and Canada in perspective, if 10,000 troops were able to stop all the fentanyl they’ve caught at southern border, the number of new Canadian officers to intercept the equivalent amount of fentanyl per officer from Canada would be 20.3 people.

Because we are living in a bizarro world, no one has even mentioned that Canada and Mexico are being asked to secure the borders of another country that is either unwilling or unable to do so.

We should also address the blatant lie about the U.S. subsidizing Canadians. We are not being subsidized by the U.S. by even one dime.

Right now, the U.S. happens to be buying more things from Canada than Canada is buying from the U.S. Usually it’s about even. But right now, in part because our economy and politics have completely broken with reality, Canada is selling a lot of oil to the U.S. right now.

If you don’t include oil, Canada actually buys more from the U.S.

By Trump’s logic, Canada is subsidizing the U.S on manufactured goods.

When you do include oil, there’s several things to point out. One is that when the Canadian dollar is this low, it means that Americans are getting a bigger bang for their buck. They get $1.50 worth of oil for every dollar they pay to Canada.

Americans were already buying our oil at a discount, because for them we are a captive market. So you already pay about $10 less per barrel for Canadian. That is because Alberta and Saskatchewan are landlocked. To get the full global price, they have to get to the global market, and they can’t do that without going through someone else’s jurisdiction, either the U.S. or another Canadian province or territory.

For Americans, what Trump is calling a “subsidy” means huge savings at the pump for the U.S. Consumers still get lower prices and the companies get a better profit.

That’s why tariffs on Canadian energy will just drive up costs for U.S companies and consumers. Significant parts of the U.S. economy rely on those Canadian resources, and there are no lower-cost replacements. That includes, oil, natural gas, electricity, lumber, and potash. That’s a lot of extra money for farmers to shell out.

Most of Canada’s exports to the U.S.are a good deal on raw materials and energy that U.S. companies then use to make something they sell at a profit. Canada is selling these goods much cheaper to the U.S. than we can get on the world market. The U.S. is also right there.

The assymmetry of the trade relationship means it could be harder on the U.S. because Canada is exporting raw materials, while we are importing finished goods from the U.S.

The Canadian economy is generally not dependent on those finished goods from the U.S. and we can source many of them from a global competitor or invest in our own production instead.

Instead of only exporting raw goods, and there is a huge amount of room for expansion in the Canadian economy for value-added processing, especially at the local level in the agricultural sector.

Canada is substantially self-sufficient in many ways. Using tariffs in this way has been described as a “negotiating tool” but they are not. They are being used as a form of sanctions in order to drive an entire country to surrender sovereignty.

It’s important to recognize that these are sanctions, and also recognize that sanctions are not just ineffective, but may be counterproductive. Countries that are sanctioned simply develop their own production, which increases domestic economic activity and leaves the economy stronger. It requires access to capital, but it is effective.

Beneficial Exchange to Protect Canadians from Tariff Shocks

The Canadian Federal government is already supposed to be preparing an economic package that will be on a par with pandemic relief.

It should be said that there were some programs during the pandemic that were extremely effective, and should be used broadly.

I was a member of the Manitoba Legislative Assembly and Leader of the Manitoba Liberal Party when the pandemic was declared five years ago. As it happened, I had worked for the International Centre for Infectious Diseases during the H1N1 pandemic, preparing communications and doing PR for the business sector on how to prepare.

At the time, as MLAs, we were flooded with e-mails from desperate business owners who were facing near immediate bankruptcy as a consequence of public health orders and a near-total lack of support.

I was reading reactions and policies from different countries, and experts and I would try to share them both with the provincial government and the federal government.

On April 7, 2020, I wrote an e-mail to the Premier of Manitoba, the Finance Minister, and the Minister of Economic Development:

We are extremely concerned that the government of Manitoba’s proposed measures to assist Manitoba businesses are inadequate, poorly targeted and will not do what they are supposed to do.

In order for the economy to bounce back after the Covid-19 crisis passes, we need as many businesses as possible to survive.

We have heard from the CFIB that a quarter of businesses may fail by month’s end, because they cannot pay their rent and they are drowning in debt. Small businesses in our constituencies and across Manitoba are telling us they will not survive a shutdown.

Reducing taxes for a business that have no revenue does not address the problem.

Small businesses and individuals need cash flow, not loans or tax cuts. A tax cut on revenue of zero is zero.

Deferring payments, likewise, will postpone costs while making them even harder to pay when the bill comes due. This is not a solution, it is kicking the can down the road.

This is not a normal business downturn in which weak businesses fail. The Pandemic shutdown will wipe out businesses old and new. New businesses, start-ups and young entrepreneurs will be particularly affected, because they have not had an opportunity to build up reserves needed: they are most likely to be burdened with debt.

What we propose – and that we urge this government to consider – is that government step in as “buyer of last resort.” Essentially, instead of asking workers and businesses to sacrifice everything they own and have worked for during the pandemic, we offer to reward them for their sacrifice.

There are two measures that we propose for government as “buyer as last resort.”

• During the shutdown have government cover the overhead of businesses rent, insurance, etc., so that that businesses can “hibernate”, then be ready to reopen when it is safe to do so. This will not only prevent individual business failures, it will prevent a cascade of defaults that will also affect landlords, utilities and more.

• Have government buy products and services from locally owned independent businesses that have to close due to the pandemic. This could apply to a wide range of products and services - bread from bakeries, food from restaurants, haircuts from salons.
  
  Once purchased, these products and services can either be
  1) donated to groups or individuals in need or
  2) re-sold so government can recoup costs
  
  A website has already been set up, called localfutures.ca, which offers individuals the opportunity to do what we are proposing. It allows customers to help businesses with overhead costs. If more Manitoba businesses joined, it would simply be a question of the Manitoba government putting money in.

There should be strict eligibility rules in place. The focus should be on Manitoba owned and operated businesses, especially if they have headquarters in Manitoba. We should not be bailing out IKEA or companies that are unaffected. The current plan does that.

It is absolutely critical for this government to offer swift action. We are confident that what we are proposing will be effective in preventing business failures, and that any funds invested in ensuring small businesses can bounce back will be repaid manyfold.

This is also a plan that keeps money and revenue flowing through the economy, and just as important, continues to support work and output. It is not just paying people not to work.

I have attached a brief paper from economists who have proposed this idea, Emmanuel Saez and Gabriel Zucman.

Unless this government changes course, Manitoba will see the greatest loss of small and medium sized businesses in history, on the watch of a PC government. There are policy options available to minimize the impact. We urge you to consider them.

The Manitoba government did nothing of the kind, nor did other provinces, where the vast majority of businesses are registered. (Only a select few industries are federally regulated).

Beneficial Exchange and “Buyer of Last Resort” in Action

At the beginning of the pandemic, Canada’s Federal Government did implement some “buyer of last resort programs”. I was able to convince the Federal Government to expand one of their programs and saw the knock-on benefits first hand.

Canadian farmers who had eggs, or chickens, or beef that they suddenly couldn’t sell, as well as ocean fishers who fell under federal jurisdiction.

There was a federal program that was buying up this food and donating it to food banks. It’s an effective way of engaging with the private sector for the public good during a crisis, in a very direct and tangible way.

In May of 2020, I read an article online that Manitoba’s entire freshwater fishery, worth $100-million, would be wiped out. I called the fisherman in the article and found out what was going on.

The price of fish had plummeted to nothing. Export markets were totally closed. Canada used to export to Russia, but sanctions in place since they annexed Crimea in 2014 meant that market was gone.

The fish is a high-end product, the kind of filet that sells for $25 in upscale restaurants in New York and Minneapolis. Except, there were riots in Minneapolis. And in New York all the restaurants were closed.

All that fish that people would usually be consuming had already been caught - and was sitting in freezers at the Freshwater Fish Corporation - a Crown Corporation, owned by the Federal Government. There were no buyers, and so long as the freezers were full of fish no one was buying, there wasn’t room for any new fish, either.

Ironically, the fact that Freshwater Fish was a Crown Corporation meant that, unlike a private business or association, they couldn’t lobby the federal government for change or assistance.

I reached out to local Members of Parliament and we connected with the appropriate department, and succeeded in changing the policy and getting the program launched.

We had to be completely secret about it. The day before the announcement we travelled to Berens River and met with a group of First Nations fishers who were nearly despondent. The value of industry to their community was colossal, as it was to other First Nations in northern Manitoba, many of which are so remote that there is no way to reach them by road or rail. They can only be reached either water and by air, or over the ice.

While we couldn’t tell them the good news, they had bad news to share. One was that everything was supposed to be web based. It’s impossible to get a hold of a human being, everything is just supposed to be done digitally.

Of course, to a government official who wants to be modern, and make things automatic, and save money by making people spend hours online that makes sense.

However, it doesn’t work when you are dealing with a community that has no road access, no internet, and no cell coverage, and some of the folks, as they candidly admitted, could not read.

There are lots of people who have very strong opinions about politics as well as people who work in government, who have no concept that there are disparities like this in Canada. They are widespread.

It was painful to try to reassure people to keep their hopes up - that things were very positive - when we couldn’t tell them the announcement.

The fishing industry was an incredibly important source of income in these communities. Individual fishers were worried about financial ruin, and so were entire communities.

The next day, the federal government announced that Fisher River First Nation and the Freshwater Fish Marketing Corp. would receive used $10.8-million to buy all of the fish and distribute all of it to every single family in 75 First Nations communities.

Because the backlog cleared, it meant the market could return to normal, and 3,000 people could go back to work. It rescued the season.

This is an example of “government as customer of last resort,” where an entire industry was preserved, while providing a major public benefit.

The process of figuring out just what the real problem was, and that starts with understanding that whatever situation you are dealing with never has just one cause. It is always the result of a cascade of events, some with unexpected twists and turns.

There are some cases of very clear blame, but we need to keep blame and morality as separate to understanding what the problem is, and addressing it correctly. Blame presumes that punishment is the solution, and our ideas of blame are profoundly shaped by cultural and societal attitudes, ranging from experience to indoctrination.

When you work through the cascade of problems, it actually goes back to one a famous IBM slogan: Nothing happens until a sale is made.

So if you target investments in beneficial exchange - where the specific spend is tied directly to a specific beneficial purchase that was delivered, it creates a public benefit while feeding the entire supply chain, where people will pay taxes.

It could also be transparent. No personal details, but the spending could all be disclosed.

This is a “grassroots” local way to deliver broad public benefits through local businesses.

As one example, you could have local food establishments and restaurants prepare meals for seniors and people in need. It’s a way of funding “mutual aid” programs, and there is always a double benefit, at minimum.

If businesses are being paid and customers are receiving a benefit, it’s investing specifically in beneficial exchange.

The other is for governments to launch renewal programs, which are generally needed anyway. For example, there is a genuine need to replace air systems in schools, hospitals across Canada. There is a Manitoba company Price, that is actually one of the world’s best at making HVAC systems.

So, Canadian governments (all levels) could also provide funding for various kinds of renewal where purchasing products of Canada would happen.

Buying and planting trees, donating plants to seniors’ homes.

There are many ways to support Canadian artists, buying and experiencing their work, and governments could provide funding to artists to teach or provide services for entertaining seniors and others in need.

The other is that governments should not shy away from assisting Canadian industry everywhere in Canada - with rapid retooling or access to capital so that Canadian companies can innovate or scale up for value-added production.

These forms of direct support are much more targeted, much more effective, and much less wasteful than indirect and highly uneven benefits of cutting taxes or regulation, when the problem is a lack of revenue. The solution is revenue.

The hyperfocus on international trade has warped our sense of economic development. The language we use always talks about “attracting” business, or workers, or investment, as if they are something we always have to import.

Canadian dollars are really the only thing that Canada makes that no one else does. Why do we always need “foreign investors" when they have to buy our own money from us?

While people talk about wanting to encourage more internal trade in Canada, there’s no recognition of the ways that we can grow out own, purely domestic economy through investment. It is how Canada industrialized after the Second World War.

That is a beneficial exchange, and the reason it is so positive in both social and economic terms is that it is the opposite of debt. Everything is freely given, and there is no loss, and no obligation. But there is are still prices, and markets, and private ownership, and there is still accountability. Oeople are still having to work for their money and thay pay their taxes on it too, and governments have to collect it and budget it, and so on. It’s not inflationary, because it’s focused on necessary help and investment.

And it should be transparent. You could anonymize the customers but still see the purchases. And that would let people know whether it was a benefit or not.

The other is that the ownership footprint of a business matters.

An American small business organization found that if you are spending $100, if you spend it at a locally owned and operated store, $43 will stay in the community. If you spend $100 at a chain store, it will be $13. If you spend at an online merchant like Amazon, with a local delivery driver, $1 of the $100 you spend will remain in the community.

These are the kind of details that really matter in terms of designing effective programs that are about more than economic assistance, they are about economic resistance.

Canada has monetary sovereignty. We have a floating exchange rate. Most of the money that is owed to the Federal government is owed to Canadians. Americans have no say in the one thing over which Canadians have a total monopoly: the Canadian dollar, and that is what the Canadian economy runs on.

With the right policies, Canada can strengthen its economy, but this also has to be said. Whether it’s military conflict or economic warfare, tweaking interest rates, tax cuts and austerity isn’t worth squat.

In response to economic warfare, Canada has to do what it takes to run an “economic wartime economy.” Canada has the resources, including financial ones to withstand these external threats, provided we are willing to consider using “unconventional” policies that work, and not the same policies that have failed to deliver for decades.

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