By Mark Mullins

Canada’s political leaders have responded to Donald Trump’s attack on our two countries’ trading relationship in a predictable way: like their constituents, they want it to go away and they want revenge. The problems inherent in this approach should lead us to reject it.

Our dollar-for-dollar tariffs on U.S. goods hurt us but do little to deter the Americans. One reputable estimate is that they more than double the harm from Trump’s tariffs. Raising costs for Canadian consumers and producers is misguided policy that lowers living standards and hampers productivity.

Our tariffs also divert money from the private sector to government. Tariffs are taxes. They will reduce trade. To deal with the Trump shock, we need a vigorous response from the most productive parts of our economy. Instead, we will get state-influenced trade flows as well as subsidies that will slow or block the changes we need.

The impact of Canadian estimate on the U.S. is miniscule, less than 0.1 per cent of their economy. Yes, some Americans will suffer more than that (think auto makers or wineries) but this will pale in Trump’s mind compared to the glories of a coming golden age for American manufacturing. As someone said recently, Trump does not do decimal points.

The fact is: the gentleman is not for turning. Trump believes tariffs are nearly as beautiful as love. They will shift business from other countries to the U.S. The lowest-hanging fruit is in America’s nearest and largest trading neighbours, Canada and Mexico, whose existing businesses will give up market share to their U.S. competitors even as new investors locate inside Fortress U.S.A.

Trump’s trade policy brings a permanent change in our economic prospects. It means the end of our political wager on hemispheric free trade that began in the late 1980s. His approach will not change. Unlike in the past, tit-for-tat retaliation will not eventually lead both trade partners to renegotiate tariffs down.

Our leaders seem not to understand Trump. He plays political hardball with bluster. He will likely respond to our tariffs by hiking his own even more. His original executive order says so in plain English. How will we respond to U.S. tariffs of, not 25 per cent, but 40 or 50? By doubling-down on self-inflicted economic destruction? Even given Canadians’ justifiable anger at bullying from a formerly trusted neighbour, that makes no sense. Our politicians need to be smart. Tit-for-tat plays into Trump’s game, which is not in our national interest.

Our policies need to reflect several realities. First, the world has changed permanently. Second, our ability to influence the American government is very limited. Third, to succeed in this new environment we need to make deep structural changes. It is decision time for our country. “What is the new path to Canada’s future?” needs to be the ballot question in the upcoming federal election.

The way to beat Trump is to be successful as a nation and the way to be successful as a nation is to embrace freedom. The best path for us is not to damage our economy by raising costs, micro-managing trade and obsessing over the U.S., but rather to liberate our people in as many ways as possible so they can seek out new economic opportunities. Politicians perennially claim to want to open Canada for business. Let’s do exactly that.

Many places around the world have made dramatic policy changes that have freed their people, attracted investment and supercharged their economies: Singapore, Hong Kong, Taiwan, South Korea, Australia, New Zealand, Israel, UAE, Saudi Arabia, Ireland, Poland, the Baltic states, Chile, and, though it’s early yet, possibly even Argentina.

All are growing faster than Canada. Many are already richer than we are. The lesson their experience teaches is to embrace the global economy. Thus they tend to have higher trade ratios than we do and more diversified trade. Their populations are, like ours, highly educated and urbanized. Their exports are increasingly tech- and service-related. And, finally, their business regulation is lighter and their openness to competition greater. As a result, they are attuned to the dynamism of the global economy.

Instead of embracing protection in a misguided imitation of the U.S., we should copy these success stories and become global free-traders. We can do better than traditional trade deals. Unilateral free trade — dropping all tariffs and trade restrictions — would let the world know we believe there is an alternative to Trumpist economic nationalism and are willing to support it.

Having opened our international border, we must also free our internal market. Many of our sectors suffer from excessive regulation, subsidization and lack of competition. A short list is: energy, dairy, mining, finance, telecom, transportation, education, health and culture. Our regionally balkanized economy also suffers from needless barriers to trade. Once these barriers are gone, we will be an attractive platform for investors and entrepreneurs in emerging economic sectors.

But let’s not start this difficult — but necessary and achievable transition — with an economic sucker punch to ourselves. Import tariffs on our prosperity are so 2024.

Mark Mullins is a Canadian economist with expertise in financial markets and public policy.

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters financialpost.com.