How can we protect people from the trade war?
Economist Alex Hemingway says mobilizing the workforce with public sector jobs can address pressing infrastructure needs, climate action and affordability
Whether the tariffs stay or go, North America has officially entered a period of economic uncertainty with a trade war instigated by US president Donald Trump.
Trump has been threatening tariffs for well over a month, now, but much of the discourse has been about responding with either counter-tariffs, or by opening up trade both interprovincially and with other countries.
But Alex Hemingway, a senior economist at the newly formed BC Society for Policy Solutions, said there are ways governments will need to respond in both the short and medium terms to protect people from the economic fallout.
If the tariffs are in place for the long term, RBC estimates a 2% contraction in GDP next year, with peak unemployment at 8%.
In BC, provincial forecasts suggested the tariffs could lead to an unemployment rate of 7.1% next year, and to 124,000 fewer jobs by 2028, largely in the natural resource, manufacturing, and retail sectors.
A CERB-like response
For one short-term response, Hemingway said the government needs to fund social assistance at rates that don’t cause recipients to “languish below the poverty line.”
He also pointed to the pandemic-era Canada Emergency Response Benefit for workers who lost their jobs as an example, saying direct cash supports for workers are “really crucial.”
And Hemingway said that any CERB-like safety net shouldn’t be temporary, as it was in the pandemic.
“Ideally, what we should be planning for here is also strengthening the EI system itself,” he said.
“Instead of just having this emergency response formula, ideally we need an EI system that pays out at higher levels and that is easier to access.”
Recovering from decades of cuts
Hemingway said the EI system has “never really recovered” from the cutbacks brought by the Liberal Party under Jean Chretien in the 1990s.
By the mid-1990s, several changes had already been made to the unemployment insurance program, including ending government contributions to the program, increasing the amount of time an individual must work to qualify for the benefits, reducing the benefit amounts, and reducing the duration of benefits.
In 1996, Chretien’s government made significant changes, including renaming the program employment insurance, as well as vastly increasing the time spent working required to access EI, particularly in regions with high unemployment.
By 2006, further changes limiting access to EI built up a surplus of $57 billion, according to a timeline of employment insurance programs put together by the Canadian Labour Congress.
“Rather than save the money for future employment needs, the money is taken out of the fund, and used to balance federal budgets that offer substantive tax cuts to corporations and the wealthy,” the CLC timeline notes.
Supports for businesses
Hemingway said the business-side supports that the government provided during the pandemic would also likely need to be replicated — but he cautioned that there would need to be strings attached.
That includes limits on bonuses and salaries paid out to executives of companies that receive the support, as well as requirements on conditions for workers, such as good pay, not interfering in unionization efforts, and pay equity.
Any supports, he said, should be “steering business activity towards solving social problems and not just bringing forward an insurance scheme for profits.”
Mobilizing a workforce for climate action
Looking into the medium term, Hemingway said governments need to be thinking about stabilizing an uncertain economy with public sector jobs — and he said that should apply with or without the tariffs.
“We should be thinking more about how to build a diversified and more self-reliant Canadian economy, so programs that generate public sector jobs could be a big part of that. We’re still in a climate crisis. I think one really interesting idea out there right now is that of mobilizing a youth climate corps,” Hemingway said.
It’s an idea that “nominally has the support of the federal government,” and it could ensure employment for all young people.
A youth climate corps motion was submitted by NDP MP Laurel Collins in December 2023, and was later seconded by three different Liberal MPs.
The motion called for implementation of a youth climate corps that “could train hundreds of thousands of youth for careers in the well-paying green jobs of the future,” including “thousands of young adults, aged 17 to 35, to assist in emergency responses required during extreme weather events, such as wildfires, heat domes, and flooding.”
The Canadian Green New Deal proposes similar actions, albeit without the specific focus on youth, noting a move to 100% renewable energy requires creating “millions of decent, well-paying union jobs for workers across Canada.”
Back to the New Deal
If such a massive jobs program were put in place, it would be the first of its kind in nearly a century, since Franklin D. Roosevelt’s New Deal in 1933.
At a time in which a quarter of Americans were unemployed, the New Deal put millions of people to work on infrastructure, including public buildings, housing, and transportation and energy networks. The yearslong suite of programs is credited with legally recognizing unions, creating millions of jobs, increasing wages (albeit with lower wages for women), restoring confidence in government, and improving standards of living.
Besides the Green New Deal proposals, Hemingway said the idea of a federal jobs guarantee has been a point of conversation in the United States, but there hasn’t been anything like the New Deal enacted since.
“There’s a whole history there to learn from there … that it’s very possible to mobilize a more mission-oriented economy,” Hemingway said.
“That doesn’t mean the private sector is not going to play an important role too, but government can help steer it and create a backstop.”
Reviving urban economies
Beyond green energy and other climate-related infrastructure, there are other areas where governments could invest to stimulate the economy, while also addressing the needs of communities, from transit to healthcare to education.
Hemingway pointed to housing as an area where governments should be investing.
“It just doesn’t make sense for people not to be working, who want to and are able to work, when there’s so much to do to build and stem some of the crises that have become entrenched,” he said.
Housing in particular could have an especially strong effect on the economy, particularly in urban centres by making them more livable and not pricing out the people who work there.
“Cities are our economic engines, and just having more people in a relatively tight radius just creates more opportunities,” he said.
“When they’re working properly, people are able to match better with jobs that make sense for them. Employers and workers are able to match better. They have more opportunities. They’re able to invest better in training because those training opportunities are there.”
And it can give workers the ability to take a risk and go back to school or try something new if they know there is an abundance of work that they can fall back on if it doesn’t work, Hemingway said.
“There are productivity gains inherent in the city and the way we’ve let cities like Vancouver evolve [is] diminishing those effects and excluding people from enjoying them,” he said.
“And we’re stopping that from happening with housing unaffordability, with exclusionary zoning. So addressing that housing affordability on both the public and private side, there’s huge opportunities there.”
To pay for these programs, Hemingway said it’s entirely appropriate for governments to borrow more during economic emergencies to stabilize the economy.
But if we want to keep these programs going in the longer term, Hemingway said there would need to be some ways of raising revenue.
Increasing taxes on wealthier Canadians is one way, he said, but counter-tariffs could also cover part of it. And he pointed to the digital services tax — “one thing that Donald Trump really hates” — as something that can be hiked up.
Beware of pushes for deregulation
One area where Hemingway suggested caution is the talk of interprovincial trade barriers.
“There’s something to that. There’s good reason to do better mutual recognition of professional credentials. There are areas where harmonizing regulations between provinces makes sense,” he said.
But he said the benefits are, in his view, being overstated.
Marc Lee, a senior economist at the Canadian Centre for Policy Alternatives, has similarly pushed back on the notion that interprovincial trade barriers would have a significant impact on the economy.
“If you roll back the clock a year ago, no one was talking about these things. That’s because to the extent that they existed at all, most have been addressed through interprovincial agreements,” Lee told BNN Bloomberg.
What concerns Hemingway is opening up interprovincial trade being a stand-in for deregulation.
“It’s important that that not be a race to the bottom. And I think that’s a concern right now. That’s often what is in the subtext of regulatory harmonization,” he said.
“We don’t want to have necessarily the same trucking regulations for going through snowy BC mountain passes as we have for driving on the prairies. … All these truck overpass collisions we’ve seen in BC tells you something about how close to the precipice of things being much worse with lower regulations.”