Trading realities

Posted by

There’s good reason to fear for NAFTA’s future, but better reason to let those fears go

With a new United States trade representative confirmed through a strong bipartisan majority in Washington, it is expected that a major renegotiation of the North American Free Trade Agreement (NAFTA) will take place later in 2017.

President Trump campaigned on the need to tear up the deal, calling it the worst trade deal in history for U.S. workers and consumers.

While he has changed his tune somewhat since taking office, his most recent comments indicate his desire to change NAFTA in fundamental ways.

Canada appears to be ready for the onslaught, having spent months on bilateral discussions with major players in Washington, from the Prime Minister’s office all the way through committees of Parliament and relevant departments.

So will Trump decimate NAFTA, sending Canada’s economy into a tailspin?

Unlikely.

But with this President, anything is possible.

The new U.S. Trade Representative, Robert Lighthizer, is not known for his strongly pro-NAFTA views.

It should not come as a surprise that Trump has appointed someone to this position that shares his skepticism regarding the benefits accrued to the U.S. through its many trade deals, NAFTA included.

For his part, Prime Minister Trudeau has made encouraging noises about the need to “modernize” NAFTA, dealing as the rest of the world is with the reality of the Trump administration in Washington.

For Canadians fearing the unilateral American destruction of a trade deal that has massively benefited our own consumers and firms for 25 years, there are powerful forces working in our favour.

While President Trump has shown he is to be underestimated at one’s peril, his leadership style is providing near-daily reminders that getting big things done in Washington is not easy at the calmest of times.

And this is not the calmest of times.

Short of pulling out of NAFTA altogether — the so-called “nuclear option” some argue, is within the president’s executive powers — any renegotiation that takes place with Canada and Mexico will have to pass muster with Congress.

The notion that the U.S. House of Representatives and Senate will pass a bill that guts or destroys NAFTA — on which the economies of so many U.S. states depend — is a stretch that is almost certainly beyond the still-unproven legislating skills of the current White House.

The Republicans may currently have a rare window of unified government under their control.

But the reality on the ground is that Canada is the number one trading partner for 35 out of 50 States, and a close second for many of the remaining 15.

More than $2 billion crosses the border every day and hundreds of thousands — or more — of jobs on each side of the border owe their existence to the trade conducted between the two countries.

In the automotive industry, it is a well-used talking point that a part can cross the border multiple times in various formats before its final installation into a finished product in Canada or the United States.

And as for the final product, the vast majority of Canadian automotive production heads south of the border for U.S. consumers — hundreds of thousands of American-built cars come to Canada each year too.

Any new deal that impedes or threatens that two-way flow will hit consumers and workers in both countries very hard.

So Canada must prepare for the worst and hope for the best on NAFTA, while continuing the quiet work of bringing key U.S. legislators on side with regards to the upcoming renegotiation.

In the final accounting, the most likely scenario is probably a set of not so-insignificant changes to the deal that leaves its essential quality intact.

Canada could offer “concessions” that have long-irritated U.S. trade negotiators in areas such as lumber and dairy, which themselves would offer great benefits to Canadian consumers.

President Trump could legitimately tell his supporters he got a better deal out of NAFTA — with that, $2 billion of daily business could carry on as it has for decades.

Comments are closed.

Canadian auto dealer