Unprepared for a NAFTA emergency

Former prime minister Stephen Harper’s leaked memo on possible failure of North American Free Trade Agreement (NAFTA) negotiations caught many by surprise. After my own visit to Washington recently, his pessimism seems warranted. So much so that the American business lobby is gearing up to forestall a U.S. withdrawal from the agreement.

President Donald Trump has reportedly told a group of senators at a private luncheon that issuing a withdrawal notification would force Canada and Mexico to agree to concessions he wants. It is similar to the strategy he’s tried in pressuring Congress to reform Dreamer immigration, the Iranian nuclear deal and Obamacare.

The White House is playing hardball. In the Trump administration’s eyes, the U.S. has been hurt by past trade agreements and China’s accession to the World Trade Organization. Trump’s remedies are one-sided and geared to American interests. Complaints by trade partners — such as Canada’s legitimate beef with Buy American infrastructure policies — don’t persuade him, because he thinks the U.S. got a raw deal the first time.

Now the U.S. is looking to revise “origin rules” to push for more auto production to the United States, which would hurt Mexico the most. It wants to undo Canada’s supply management for dairy, eggs and poultry. It wants to eliminate NAFTA’s dispute mechanism, subjecting Canada and Mexico to unilateral import duties. The worst policy would be to put a five-year sunset clause on NAFTA that would create immense uncertainty for crossborder trade.

This “America First” strategy will not improve free trade. Instead it takes us backwards into trade protectionism. Although negotiation outcomes are far from certain, it struck me that Canadians are insufficiently paying attention to the big question: What if NAFTA fails?

There are two main reasons that this question is highly relevant. First, we should understand our “credible threat” in a negotiation: Would it be better to let NAFTA die or, as the

While Canada has concluded a trade agreement with Europe and is looking to develop trade agreements with Asian countries, these markets are far less important than the American one. Canadian two-way trade with the faster-growing AsianPacific region is less than $170 billion, only a quarter of our trade with the U.S. Losses in American markets would not be made up easily with gains elsewhere.

Besides, Canada has done a poor job in developing alternative markets, especially for auto and energy products (both currently in surplus with the U.S). Oil and gas is our most important trump