Why Canada needs Mexico
Hang together or separately on NAFTA
Donald Trump is as much guided by The Art of War as by The Art of the Deal when it comes to trade negotiations — specifically, Chinese Gen. Sun Tzu’s assertion that if forces are united against you, separate them.
Trump reached a deal with European Commission President Jean-Claude Juncker Wednesday, aimed (from the European standpoint) at averting a trade war and the U.S. president’s threat to impose 25 per cent tariffs on car imports. Both sides will “hold off ” on more tariffs while negotiations proceed on resolving the steel and aluminum levies already in place, Juncker said.
The tariff ceasefire came as news to Canadian Global Affairs Minister Chrystia Freeland, who was speaking to reporters by teleconference from Mexico City, after meeting presidentelect Andrés Manuel Lopez Obrador to discuss the North American Free Trade Agreement.
“It sounds like positive news,” she said. “Any action by the U.S. administration to pull back is a really good thing.”
But with this president, who can tell? He took to Twitter claiming “tariffs are the greatest,” and the Washington Post reported Wednesday that Trump will impose tariffs on US$200 billion in foreign autos later this year.
Was this an attempt to divide and rule what threatened to become a united retaliatory front to his auto tariffs? He has certainly attempted to separate Canada from Mexico in recent months.
Trump has said repeatedly he would prefer to strike bilateral deals with Canada and Mexico, rather than renew the trilateral North American Free Trade Agreement.
Yet Canada has stuck doggedly to the line that it would stand by Mexico, even when people like former prime minister Stephen Harper were suggesting the Trudeau government had made a tactical error by co-operating too closely with America’s southern neighbour. His leaked “Napping on NAFTA” memo said Trump complained constantly about Mexico, not Canada, and, as such, it was unwise to get too close. “The U.S. is both irked and mystified by the Liberals’ unwavering devotion to Mexico,” he wrote.
In those halcyon days when a win-win deal with Trump seemed possible, that loyalty did seem misplaced. But as it has become clearer that the president sees trade as a zero-sum game, such “unwavering devotion” looks like a sensible hedge.
Freeland, Bill Morneau, the finance minister, and Jim Carr, the new trade minister, are in Mexico City seeking reassurance that the incoming administration of Obrador is on the same page on NAFTA as that of outgoing president Enrique Pena Nieto, who retains negotiating authority until the handover of power in December.
The answer appears to be a resounding “yes.”
The two Mexican government ministers handling NAFTA negotiations — Economy Minister Ildefonso Guajardo and Foreign Minister Luis Videgaray — said they are only interested in a three-way deal. They also backed Canada’s rejection of a five-year “sunset clause” as impractical. “You cannot ask the auto industry to design a new business model but at the same time, you tell them: ‘Look in five years we may change our minds,’” said Guajardo. “Nobody is going to invest a single Canadian dollar, a Mexican peso, a (U.S.) dollar.”
Videgaray said he remembered being in Toronto in February when there was talk about Canada “throwing Mexico under the bus.” But he said Canada stuck with Mexico and now Mexico will stick with Canada.
Obrador, known as AMLO, wrote to Trump after his election in early July to call for a resumption of NAFTA negotiations between the three countries. Jesus Seade, Obrador’s designated chief NAFTA negotiator, told Inside U.S. Trade he plans to maintain Mexico’s position in the talks and that his preference is for the deal to remain trilateral.
Carr said the in-coming and out-going governments were “well-aligned” on important issues. Freeland added that the “strong, effective collaboration” the two countries have enjoyed on NAFTA is “set to continue.”
Bloomberg reported this week that Mexico is pushing for a NAFTA agreement by the end of August. Trade watchers in Canada and the U.S. point out that a deal that raises wages for Mexican auto-workers would be good for Obrador, while any downside could be blamed on the outgoing government. The U.S. is seeking a minimum wage floor for Mexican autoworkers, which could close some plants unless they were grandfathered.
Despite saying he was happy to wait until after the U.S. mid-terms in November to sign a new NAFTA, Trump also signalled he was seeking swift resolution in a letter to Obrador published Tuesday. Trump said he thought a new deal would lead to more jobs and higher wages on both sides of the border, “but only if it can go quickly, because otherwise I must go a much different route,” he wrote.
The heightened sense of urgency was apparent in Mexico City, where officials on both sides said they were optimistic they could reach a deal, despite Trump’s insistence on a sunset clause and threats of auto tariffs.
Freeland said such an action would be “misguided… illegal and has the potential to be devastating for the global economy.”
But just because he has struck a deal with the Europeans, presumably in exchange for massive concessions, does not mean Canada will be exempt, unless it caves in similar fashion.
European minds were focused by an assessment that the addition of about US$11,700 to the sticker price of a European-built car would cut U.S. imports of European car and car parts in half.
Having cleaved the EU away from the other countries in his cross-hairs, Trump can now be relied upon to be implacable in his demands on Canada: the imposition of a sunset clause, the end to dispute resolution panels and enhanced access to this country’s dairy industry.
Sun Tzu said all warfare is based on deception. Trump’s volatility has cowed his opponents into making concessions and he’s not done yet. Canada and Mexico must hang together or the president will ensure his NAFTA partners hang separately.