Leverage

There's an old saying in chess that the threat is stronger than the execution. When you’re in a fight and you've got leverage, there's nothing to be gained in relieving the pressure prematurely.

Donald Trump is supposedly a 4-D chess player, although it's not unreasonable to suspect that even his most ardent admirers couldn’t begin to tell you what 4D chess is. But whatever you call this new game, dealing with the US has become much more combative since last November. Mr. Trump's confrontational and transactional approach to international relations has turned many formerly routine interactions into us-versus-them battles.

Suddenly, everyone outside the US is looking for leverage of their own.

In Ottawa the race will be on to identify programs and funding that have an American angle. Lawyers and policy experts will be spending their days figuring out how these can be re-engineered into ammunition for the tariff war effort.

An important part of this exercise, the newly announced "Secure and Sovereign Canada" cabinet committee whose mission is to "reinforce Canadian sovereignty, productively manage Canada-U.S. relations, and advance Canada’s interests," could just as easily be called the Leverage Management committee.

It's no surprise then that newly-minted Industry Minister, the Hon. Mélanie Joly, gets top billing among SSC committee members, listed just below Chairs David McGuinty and Anita Anand. Casual observers will, of course, attribute Joly's membership to her recent role as Minister of Foreign Affairs.

But that was then. Now, Ms. Joly's new portfolio puts her in charge of Canada's foreign investment review mechanism, the Investment Canada Act.

Any American corporation that wants to take over a large Canadian company, or even make a sizable investment in Canada, needs her regulatory approval under the highly-discretionary ICA. The legislation also allows foreign investments of any size to be rejected if they harm Canada's national security, although up to now that power has largely been exercised against Chinese, Russian, and a smattering of other, non-American nationalities.

That status quo is no more. Recent amendments to the National Security Guidelines expand the factors the Minister can take into account to include "the potential of the investment to undermine Canada's economic security through the enhanced integration of the Canadian business with the economy, or any sector of it, of a foreign state".

This is leverage, pure and simple. In the context of Mr. Trump's 51st state threats, American investments can be refused as national security threats on the premise that they will result in enhanced integration with the US economy. Not exactly the usual definition of a national security threat, but then again these aren't usual times.

It's one thing to announce this new tough stance, and quite another to implement it. Just because American investors can be spurned doesn't mean they necessarily will be. How to execute the threat -- or even whether to do so -- will have to be dealt with eventually.

Right now though, given the outsized influence of US corporations in the Canadian economy, an immediate blanket refusal of all US investment would be just too economically harmful. We might not like the Americans at the moment, but we still need them.

On the other hand, business as usual -- in normal times essentially all US investments are approved with negotiated undertakings to protect Canada's interest -- is unrealistic and untenable. Any approval of an American take-over of a Canadian business promises to be a whalloping political headache for PM Carney and Ms. Joly.

What to do, what to do? In the lingo of senior civil servants, this is a situation which needs to be managed rather than solved. In practice, such management often amounts to playing for time, with the expectation that other priorities will eventually arise, displacing the current problem with a new one.

In the same vein, the threat of refusing US investments will often be more useful in coping with Mr. Trump than actually pulling the trigger and issuing refusals. This means individual deals will run a higher risk of being held in a sort of politicized suspended animation for the foreseeable future.

Even in normal conditions both ICA national security and economic -- aka "net benefit" -- reviews are pretty slow. The tight legislative deadlines for net benefit are routinely extended by agreement between the parties and Industry Canada. Undertaking negotiations take as long as they take, and that can be many months.

National security reviews, whose deadlines are much more strictly delineated under the law, can take up to half a year to complete. In the Trumpiverse, that's practically an eternity. Anything could happen by the time Christmas rolls around.

Anything, that is, except quick decisions under the ICA for American investors. Those are going to be slow. There's time on the 4D chess clock yet.