Looking out for Numero Uno

Animal Spirits to place itself firmly on the sidelines.

So much for the Three Amigos. It’s every country for itself.

Now, lest one think there is something disloyal about pre-emptively throwing our Mexican friends to the ravages of the overcombed eagle, the context is helpful.

The salient fact is this: the United States was, is and forever shall be Numero Uno for Canada, with or without NAFTA. Our total trade with the U.S. in 2015 was more than $760 billion — at least three-and-a-half times the combined trade with Canada’s next four largest partners (including the European Union, at No. 2). Total merchandise trade with Mexico that year was $26.3 billion, or about 3.5 per cent of the U.S. level.

As an export market, Mexico looks even smaller (under $8 billion in 2015). We export more to more distant lands — China, the U.K and Japan. And we send nearly 50 times more stuff (in dollar terms) to the U.S. than we do to Mexico.

It’s clear, then, that sacrificing our relationship with the States to defend Mexico’s place in NAFTA would be foolhardy, at best — suicidal, at worst.

Of course, it might not come to that: we don’t know, after all, what the end game of the Americans’ NAFTA insurgency is. But let’s say that it did come to that, and Canada, in the interests of self-preservation, lets its free-trade relationship with Mexico diminish or even disappear. Would we miss it much?

Well, there would certainly be costs. (They would be even higher for the States, but that’s another story altogether.)

While still relatively small, Canada’s trade with Mexico has ballooned under NAFTA. It’s risen by 10 per cent annually since 1993, and in some sectors it’s grown even more quickly. For instance, Mexico has become a big market for Canadian agricultural products, and the third-largest destination for Canadian oilseeds (think canola), after China and Japan. Canada, meanwhile, has become a significant export market for Mexican food product.

Mexico is also the No. 3 or No. 4 destination for Canadian manufacturing exports (neck-and-neck with Japan), especially in the automotive sector. Canadian auto-parts makers such as Magna, Linamar and Martinrea have significant factory operations in Mexico, as does Bombardier, which has a plant in Hidalgo that supplies trains to clients around the world, including the United States. Clearly, if Trump’s Mexicopointed protectionism disrupts North American supply chains, there would be damage to those companies, as well as to their U.S. and global counterparts — how much, it’s hard to say, without knowing exactly what the new White House administration has planned.

Yet there’s a more general, and maybe moral, side to what Canada (and the U.S.) would give up in the NAFTA ex-Mexico scenario: potential.

Mexico is the secondlargest economy in Latin America, and its GDP is poised to overtake Canada’s in the years to come. Under NAFTA, it has gone a long way to cleaning up its regulatory processes and opening its markets. Its population is young and getting better educated — Mexico has the highest growth rate of secondary school graduation of any OECD country. And even with NAFTA, there are far more people entering the workforce than there are jobs for them, which has helped to create one of the most cost-efficient labour markets in the world — cheaper than China’s. (If the United States, which is at full employment, was thinking with its brain instead of its pride, it would be working on ways to let more Mexican workers into the country, rather than building walls. But whatever …)

A return to Canada-U.S. bilateralism would be relinquishing a dream (granted, not one that has exactly inspired the masses) of a unified North American bloc that has it all: vast resources, a cost-efficient, skilled labour pool, a wealth of intellectual and financial capital, and the largest consumer market in the world. Brian Mulroney once spoke of the evolution of “NAFTA-plus,” an even closer integration in which the three countries would join forces to negotiate and compete with the rest of the world, in much the same way the European Union does.

Nice idea? I think so. But given the political atmosphere south of the border, it’s a pipe dream our leaders can probably no longer afford to entertain.