Pro­tec­tion­ism re­mains very much a part of the U.S.’s DNA.

Pro­tec­tion­ism in the U.S. may not be as se­vere as it was in 1930, but it re­mains very much a part of that coun­try’s DNA

Investment Executive - - FRONT PAGE - BY GORD MCIN­TOSH

the bipo­lar ne­go­ti­a­tions for a re­newed North Amer­i­can Free Trade Agree­ment (NAFTA) have slumped into de­spair again, mak­ing an agree­ment this year far less likely. But even if an agree­ment can be sal­vaged some­how, that’s un­likely to be the end of trade dis­putes with the U.S.

Canada was locked into a trade war with the U.S. even be­fore talks to up­date NAFTA be­gan last year. And trade dis­putes with the U.S. won’t end with NAFTA 2.0.

If any­thing, we can ex­pect sev­eral years of trade spats and ar­gu­ments with the Amer­i­cans, much in the way we were trapped in on­go­ing con­sti­tu­tional de­bates dur­ing the Que­bec “nev­eren­dum” era of the 1980s and ’90s.

Be­tween 2005 and 2014, the U.S. ini­ti­ated just two anti-dump­ing and coun­ter­vail­ing duty in­ves­ti­ga­tions. Be­tween 2015 and 2018, there were 11, ac­cord­ing to Bloomberg LP. Clearly, there’s a con­ta­gion of U.S. trade ac­tions that’s un­likely to stop with a new NAFTA. And there’s one dis­turb­ing de­tail to think about: most of those trade com­plaints pre­ceded Don­ald Trump tak­ing of­fice.

Let’s face it, much of the U.S. po­lit­i­cal class is highly pro­tec­tion­ist and be­lieves free trade ap­plies only when the U.S. ex­ports its goods to other na­tions, just as so many or­di­nary Amer­i­cans be­lieve their jobs are un­der threat of be­ing ex­ported to other coun­tries. That the U.S. un­em­ploy­ment rate is at an 18-year low of 3.9% doesn’t mat­ter.

As for­mer Cana­dian trade en­voy Gor­don Ritchie has noted, con­sumer in­ter­ests don’t count for much i n Wash­ing­ton, D.C. Seek­ing trade re­dress from the U.S. De­part­ment of Com­merce is too easy for vested in­ter­ests at any time they feel the ef­fects of for­eign com­pe­ti­tion.

Trade pro­tec­tion­ism in the U.S. may not be as se­vere to­day as it was in the era of the Smoot-Haw­ley Tar­iff Act of 1930, but pro­tec­tion­ism re­mains very much part of that coun­try’s DNA.

Which is why the Of­fice of the U.S. Trade Rep­re­sen­ta­tive has been busy block­ing reap­point­ment of trade dis­pute judges at the World Trade Or­ga­ni­za­tion with whom the U.S. ad­min­is­tra­tion dis­agrees.

Cana­dian ex­porters’ trou­bles at the U.S. bor­der stand to in­crease un­der a re­vised NAFTA be­cause of its em­pha­sis on rules about coun­try of ori­gin. Amer­i­can of­fi­cials at the bor­der are no­to­ri­ous for their sub­jec­tive and ar­bi­trary judg­ments.

That Cana­dian ex­porters will be sideswiped in the U.S.’s steel war with China is in­evitable. U.S. of­fi­cials will be sus­pi­cious of China’s steel find­ing its way into Cana­dian goods, just as so many U.S. of­fi­cials be­lieved — wrongly — that the 9/11 ter­ror­ists en­tered their coun­try from Canada. Facts won’t mat­ter much in the Land of Ur­ban Myth.

When the orig­i­nal NAFTA went i nto ef­fect in 1994, Cana­dian busi­ness trav­ellers sud­denly found them­selves sub­ject to in­tense scru­tiny at the U.S. bor­der. This was be­cause of Amer­i­can sus­pi­cions about Mex­i­can busi­ness trav­ellers, and cus­toms of­fi­cials needed to ap­pear even-handed.

Fol­low­ing up the orig­i­nal NAFTA with a cus­toms treaty with the U.S. would have been wise. When NAFTA 2.0 fi­nally is set­tled, sub­se­quently seek­ing a cus­toms treaty will be just as wise — par­tic­u­larly re­gard­ing how rules of ori­gin will be ap­plied.

To l ook be­yond Trump’s pres­i­dency also would be wise. These days, Trump is in a truly odd sit­u­a­tion: his chances of be­ing re-elected are far bet­ter than of him ac­tu­ally stay­ing in of­fice for his first term. Im­peach­ment or forced res­ig­na­tion can­not be dis­counted as rea­son­able con­tin­gen­cies. Vice Pres­i­dent Mike Pence would be a less vul­gar and mer­cu­rial pres­i­dent.

But there’s no rea­son to ex­pect any change be­yond a sub­tler form of pro­tec­tion­ism so long as so many Amer­i­can vot­ers feel threat­ened.

At some point, Amer­i­cans will re­al­ize un­bri­dled pro­tec­tion­ism is cost­ing them in­flu­ence on the world stage, just as that at­ti­tude did dur­ing the Great De­pres­sion. But, in the mean­time, the Amer­i­cans will be more than just the noisy neigh­bours down­stairs to Canada’s cur­rent — and fu­ture — gov­ern­ments.

In 1923, U.S. Pres­i­dent War­ren Hard­ing stood in Van­cou­ver’s Stanley Park and urged both coun­tries to trea­sure “the world’s largest un­de­fended bor­der.” That rhetoric would be­come an of­fi­cial pol­icy that served both coun­tries well un­til the 21st cen­tury.

Cooler heads in both coun­tries should think hard about how to pro­ceed be­yond NAFTA 2.0 when it’s fi­nally signed.

Amer­i­cans will re­al­ize their pro­tec­tion­ism is cost­ing them on the world stage

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