2017-02-11 With a successful tour of the Pacific in the books for Secretary of Defense Mattis, and a clear deepening of the relationship of Japan with the United States under the strong leadership of Prime Minister Abe working with President Trump, what can be expected from Prime Mnister Trudeau’s meeting with President Trump?
In this article by Danny Lam, the challenges facing the American President in dealing with the current Canadian government is the focus of attention.
The Upcoming Visit of Prime Minister Trudeau with President Trump: What to Expect?
By Danny Lam
Political leaders of major nations prefer encounters with their peers to be shrouded in ceremony, pleasantries, and to the extent possible, as little disagreements as possible.
Diplomats are trained, conditioned to deliver the most unpleasant of messages in the most plateable manner as possible to their counterparts and have their counterparts accept it. In the process, messages may get obscured, obfuscated, or just plain ignored until the issues that could have been resolved with frank and candid conversations early on become major issues.
Relations with the US and Canada illustrate these flaws inherent in classical diplomacy that to date, obscured the brewing anger and frustration with Canada under successive US Administrations.
Canadians are fond of bragging about their relationship with the US: “Canada has no closer friend, partner, & ally than the U.S.”, as the Trudeau regime recently tweeted.
From the US perspective, things are quite different. Historically, Canadians are regarded by the US Government as difficult people that are the biggest whiners whose only thing in common that they speak the same language as Americans. Canadians are insufferable: “people [American officials] roll their eyes when you talk about the Canadians”. (p.75).
True to form, the Trudeau regime have demonstrated a flagrant disregard for commitments made by the Harper government to increase defense spending at the Wales NATO meeting in 2014. Put that in the context of the Harper government’s withdraw from Kyoto Protocol in 2011, and it is self evident that commitments made by Canadian regimes have a problem with credibility and enforceability.
History will weigh heavily on any dealings between Canada and the Trump Administration.
President Trump will likely insist on legally binding, iron clad guarantees with substantial penalties for failure to meet hard targets with business like regular (e.g. quarterly and annually tracked) verification in any deal with the Trudeau regime.
Intense pressure applied by Secretary of Defense Mattis on Defense Minister Sajjan at a recent meeting before the first Trudeau-Trump summit had negligible impact except for more whining and resort to creative accounting.
Canada’s Foreign Minister, meanwhile, openly threatened the US with a trade war after touting the “mutually beneficial”, “balanced” trade relationship.
Just how “mutual” or “balanced”?
The foremost issue that will be raised by the Trump Administration will be Canada’s status as a longstanding defense free rider. This was tolerated in the aftermath of the collapse of the Soviet bloc, but no longer given the rapidly deteriorating security environment in Asia and the Arctic.
Canada is not meeting their treaty obligations to NATO, NORAD, Five Eyes and failing in border security despite firm, clear, unequable, public messages from the GW Bush and Obama Administration and allies like Norway and the UK.
Synthetic narcotics trafficking from China via Canada is an example of an issue of growing concern as the Mexican smuggler route tightens as Canada loosens visa restrictions on Mexicans.
Canadian federal and provincial leaders’ blissful ignorance of real, near term threats like terrorism, North Korean nuclear ballistic missiles; or wholesale theft of IP and secrets by foreign intelligence services and agents; or leveraging “free trade” and “immigration” to undermine security is stressing collective security arrangements with the US to the breaking point.
The US must choose whether to defend threats to the US or Canada and where to “build the firewall” for each class of threats.
Being a defense free rider is one thing, but to have Canadian Foreign Minister Chrystia Freeland, an ethnic Ukrainian, brazenly pester the US and allies to increase pressure on Russia while neglecting Canada’s obligation for the defense of the Canadian-Russian frontier and Canadian sovereignty is unconsciousable.
Perhaps the Trudeau regime expect the US to pay all the bills for countering Russian and Chinese moves against the Canadian Arctic because of their NATO obligations?
While the previous Harper government pleaded poverty, money is no object for the Liberal regime’s favored pet projects.
Defense cutbacks disguised as stretchouts in Canada did not prevent the Trudeau regime from turning a “balanced” budget under Harper to running CA$30 billion annual deficits (2016-18) after sharp rises in social spending.
These antics, tolerated but not unnoticed by traditional statesman like President Obama and his predecessors, will not go unnoticed and be tolerated by the Trump Administration with a business like focus on near term results and quantifiable deliverables from Canada within at most a few years. (e.g. Q3 2019)
What is different about the Trump Administration is the willingness to ignore traditional “issue compartmentalization” between areas like trade, defense, etc.
President Trump made it clear that issues like (e.g. US-Mexico) border security that result in expensive US remedies like the proposed border wall will be paid for, one way or another, by Mexico.
President Trump’s moves are calculated to deliver results, perhaps not instantly, but not beyond the first 3 years of his term: A business, rather than politician’s pace.
Thus, the Mexican wall and options that are openly discussed included border taxes, taxes on remittance from the US to Mexico, or fees on trade and movement of people that can and will be implemented quickly with a supportive Congress.
With this precedent, Canada should expect to be treated no differently than Mexico except that Canada’s problem is being a persistent, long term defense free rider.
President Trump will get Canada to pay for security or their fair share of defense, one way or another. Fees or sanctions on cross border trade and movements of people are logical targets given the sheer volume of US-Canada interactions.
Canada’s long standing strategy of delay, delay, shadow boxing, make it look good, multilaterally tying the US Administration in knots (e.g. at NATO, UN, WTO) so it becomes the next Administration / Congress’s problem is a defunct strategy in the face of President Trump’s business like approach and timeframe.
Moreover, aggressive lobbying by Canadian interests of Administration officials and Congress against the Trump Administration is likely to increase hostility rather than produce positive outcomes for Canada. Canadian “Oh poor me” whining will be treated as just that and risk relegating Canadian influence to the level of Thailand.
The Trudeau regime love to brag about the benefits of trade with the US. Trudeau and his surrogates relish their self appointed role to educate the Trump Administration, Congress, State representatives, etc. about “free trade”.
Meanwhile, behind the rhetoric, Canada is not only just a free rider in defense, but what little pittance is spent on defense is poorly spent. Canadian lobbying in the US will raise Canada’s profile, in the process, expose Canadian hypocrisy, defense free riding.
Canadian lobbying is just as likely to increase American demands for fair trade and access to closed Canadian markets; and raise issues like reimbursement for US defense spending expected and commonly received from allies like Japan, South Korea, etc.
Americans will discover that Canada is operating one of the most protectionist trade regimes in defense and government procurement comparable to trade regimes of the People’s Republic of China and the Democratic People’s Republic of Korea (North) under Juche.
Bilateral trade that is roughly in balance with the US touted by Canadian lobbyists obscures the fact that had Canada met collective security spending obligations, the trade balance will tilt substantially in the US favor. “Free trader” Canada played the depression era competitive devaluation game to the hilt with CAD falling from par in 2011 to the 65 cents range US expected in 2017.
The Trump Administration, rather than focus on the overall trade balance with Canada, will instead, look at the foregone opportunities (or lost business) cause by Canadian protectionism and free riding particularly in government and defense procurement.
Typically, an OECD nation would spend a quarter of their defense procurement on equipment. Canada is spending less than 1% of GDP on defense, amounting to CAD $20 billion a year devaluation notwithstanding.
That suggests a market size of $5 billion a year. But if Canada spent 2% or more, that market for arms doubles to $10 billion annually before any consideration of the severely depleted capital stock of Canadian armed forces and the Canadian dollar.
If Canada spent according to NATO and other obligations, and provided a level playing field for US defense firms, it is reasonable to expect the US will receive at least 50% share of Canadian arms procurement business, or spend at least CAD $5 billion a year for US made defense equipment. The US is receiving nowhere near this level of business from Canadian defense procurement averaged over the past decade.
President Trump will see this as Canadian free riding and protectionism costing Americans tens of thousands of jobs with at least CAD $5 billion or more of US arms sales foregone annually. He will likely order the USTR to make Canadian protectionism in defense and government procurement a high priority for NAFTA renegotiation once the Commerce Department and USTR gears up.
Canadian defense procurement is rife with protectionist rules like requirements that bidders provide 100% of the value of the contract in Industrial and Technological Benefits (ITB): equivalent procurement from Canadian firms.
This Canadian requirement has no equivalent for the vast majority of Canadian exports to the US. Should countertrade requirements be imposed on imports from Canada to the US (e.g. on Canadian origin autos and parts, or petroleum), it would cause a collapse of Canada-US trade overnight faster than a border tax.
In the context of being a defense free rider, the Trump Administration could well take a dim view of Canadian protectionism in defense procurement where the US have a clear competitive advantage such as the Liberal regime’s pledge to not buy the F-35 Joint Strike Fighter in favor of higher cost, poorer performing “interim” solutions despite receiving about $1 billion (with a lifetime $10 billion) in JSF contracts to date on the understanding that Canada will buy the F-35. Meanwhile, Liberal negotiators are demanding Boeing provide 100% offsets for the “interim” F/A-18.
The Trump Administration will see it as only fair if the F/A-18 deal is approved that Boeing be granted 100% credit plus interest (repaid to Lockheed Martin) for any offset obligations stipulated by Canada to Boeing.
Canadians that are fond of lecturing Americans on “free trade” should perhaps begin by asking why Ottawa spent nearly CA$5,000/rifle to buy single shot bolt action rifles for the Canadian Rangers, and is presently planning to procure combat pistols at a price of about CA$2-$3,000 each when US firms can supply the items “off-the-shelf” for a fraction of the cost.
Canadian protectionism and the ridiculous extent to which Canada will go to is illustrated by the Canadian Surface Combatant program, a program allegedly worth (if not cancelled) at least CA $26 billion or more for a fleet of up to 15 warships. This program was structured so that no US shipbuilder can fairly compete and have little or no prospect of winning a rigged competition for a “proven” design that suddenly included an unproven BAE Type 26 paper ship projected to begin construction in Scotland this Summer 2017.
Competing bidders for the CSC program have to hand over all their intellectual property (initially including foreground and background data but later limited), supplier networks, plans, specs, drawings, tooling and details to a commercial firm (Irving Shipbuilding) just to submit a proposal. Fincantieri estimated that compliance with the RFP terms require will cost CA$10-20 million.
The project was described by Fincantieri, a reputable ship builder and potential bidder as follows:
“Current structure of the procurement limits the role of the warship designers to simply providing engineering and design services to Irving, which will then build the vessels. In return for that small role, the companies are being asked to provide valuable intellectual property to their designs, access to their established supply chains and transfer technology to Irving and Canada. In addition, the warship designers have to provide a warranty on the integration of technology into their designs, even though they are not responsible for buying that equipment.”
These are not normal commercial terms. These are in effect, terms for complete technology transfer and worldwide license to be included in the price of the contract. That may be fine if there is a stipulated minimum order quantity / volume — but there is none for a bidder a priori to handing over their knowhow and detailed proposal at their expense (estimated to be upwards of CA$20 million).
The “winner” has no assurance of minimum order quantity, nor what happen to their expertise and data handed over if the project do not proceed.
This is not a RFP. This is wholesale theft and pillage to set up a competitor in the guise of a “competition”.
This is the kind of requirements commonly seen in trade with the People’s Republic of China and tactics routinely used to steal technology. The Canadian subsidiary of Pratt and Whitney participated in such a theft by the Chinese military’s Z10 attack helicopter program and was fined US$75 million in 2012.
With this track record and the subsequent clamp down on Canadian subsidiaries access to US technologies and secrets, it is astonishing that the Trudeau regime is acquiescing to their outsourced contract evaluator Irving Shipbuilding to do the same.
The “competition” administered by a Canadian commercial firm (Irving Shipbuilding) have a partnership with BAE systems and is also a bidder with the Type 26 — a direct conflict of interest that favor the unproven BAE entry to win. Neither the Canadian government nor Irving have provided potential bidders and their governments iron clad guarantees with penalties that persons with knowledge of the details will not pilfer ideas wholesale from the best competing proposals.
The Trudeau regime is not even trying to erect firewalls.
In effect, the CSC procurement is a de facto exercise in state (and / or Irving Shipbuilding the program administrator and bidder) sponsored theft of knowhow, intellectual property, and expertise in the guise of a “competition” that no US firm is likely to be allowed by DoD to participate, let alone win.
Such behavior is normally expected from the People’s Republic of China, but Canada? Coming from a strident advocate of “rules based international order” and “free trade” Canada profess to be?
Then there are garden variety industry subsidies.
Favored Canadian firms receive CAD billions in subsidies from Federal and Provincial governments. Bombardier, tightly controlled by the Beaudoin family in Quebec, just received about USD 280 million in Family Allowance Payments from Ottawa after the Province of Quebec “invested” USD 1.5 billion in 2015 in the rail subsidiary in addition to US$1 billion “investment” for a 49% stake in the C-Series.
This is to ensure survival of a firm building competing aircraft to Boeing.
Likewise, the probable award of a de facto no bid, no compete contract valued at CAD 26 billion to Irving Shipbuilding for the CSC program is a family allowance payment for the Irvings to develop a direct competitor in the world frigate market.
Protectionism in Canadian government procurement would be somewhat less obvious had the Trudeau regime not went further to institute a “gag order” to prevent bidders and competitors from discussing the merits of their proposals in public, including advertising.
Similarly, lifetime gag orders on Canadian military personnel and officials were imposed on 235 persons involved in the replacing Canada’s fleet of fighter aircraft. Fortunately for Trudeau protectionists, Canada do not have a “First Amendment” and to date, no Canadian Chelsea Manning and Wikileaks have emerged.
The contrast between Canada and other US allies that are large, profitable customers of US defense equipment is sharp, clear, and distinct. Many US allies make little (or no) demands for “offsets” and pay handsomely for equipment procured from the US. Canada is using the leverage from defense procurement to unfairly and unreasonably pilfer technology, knowhow, and injuring US firms and costing US jobs.
Schemes like the CSC bidding requirements is not about seeking an equitable share of work from procurement of defense equipment from abroad. It is seeking to build a competitor no different than what the PRC did in steel, autos, and trying to do in semiconductors.
To sum up, Canada under the best of circumstances spends a pittance on defense, and what little Canada spends is wasted on their intricate networks of domestic subsidies and regulations that would do North Korean Chairman Kim Jong Un proud. The military capabilities Canada have represent poor value for the Canadian taxpayer’s dollar.
The US spends almost four times as much as Canada (.9%g GDP) on defense (US: 3.6%) with the Trump Administration committed to raising spending to rebuild the US military.
The Trump Administration will be asking why these scarce defense resources be deployed to defend Canada?
President Trump will wonder loudly why a free rider like Canada have privileged access to the US market?
The question is, will the Trump Administration allow this to continue?
Will President Trump allow Canada to have a one sided “free trade” deal that vastly favors Canada when Canada has a long history of being a free rider and exploiting their “close” relationship with the US?
What if President Trump reciprocated with Canadian style protectionist measures? Or demand a minimum annual purchase of US defense equipment without offsets?
Canadians have no credibility preaching “free trade” to the Trump Administration until such a time as Canada end free riding and begin to practice free trade themselves.
President Trump may elect to make a point by sitting down with Prime Minister Trudeau over a McDonald’s hamburger.
Danny Lam is an independent analyst who lives in Calgary, Canada.
Editor’s Note: Second Line of Defense recently attended this year’s Norwegian Airpower Conference which focused on building a fifth generation combat force.
During the public discussions the focus was upon how Norway was building new national capabilities to ensure that there was a high deterrent threshold for Norwegian defense, including the evolving Arctic challenges.
The US and the UK were often mentioned. Not once was Canada mentioned as part of the way ahead for Northern defense.
The only representation of Canada was a painting on the wall showing Norwegians training in Canada in World War II.
Talking privately with Norwegians at the Conference and in Oslo, there is clearly real respect for the quality of Canadian military personnel; and equally real concern about the cratering of Canadian defense capabilities,
Oh by the way, the UK and Norway are both flying P-8s and F-35s as part of their defense transformation.
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