NAFTA’S ONLY FREE-TRADER.

There is gathering gloom over the future of the North-American Free Trade Agreement. As negotiators prepare for what are said to be crucial sessions in Montreal in a couple of weeks, some trade experts say the deal is likely doomed at the hand of U.S. President Donald Trump’s anti-NAFTA verbal trade war. As pessimism grows, a new idea has emerged in some circles: Maybe Canada should join Trump and dump Mexico as partner.

After all, say these protectionists, Canada has lost thousands of auto jobs to Mexico since NAFTA was signed in 1994. Over the last two decades, Mexico’s exports to Canada have grown faster than Canada’s exports to Mexico, leaving a dreaded and growing “trade deficit.” Time to forget Mexico and go it alone with Trump.

Such a betrayal has been in the speculation air for some time. In November, former Mexican president Vicente Fox warned Prime Minister Trudeau not to abandon Mexico. In a CTV interview, Fox said Trudeau “might, like Judas, give us a strike and go with the United States and leave us (Mexico) aside. I warn Trudeau, and I warn Canada, you will not make it better (without Mexico).”

While it seems unlikely Canada will stab Mexico in the back, it is not outside the realm of possibility that Canadian policy leaders might be inclined to align with the views of Canada’s labour leaders and other anti-free trade activists and support Trump on trade.

A review of the trade positions of the three nations suggests only one nation can be said to have a real interest in freer trade. The negotiation objectives announced by Canada and the United States are loaded with traderestricting provisions, including auto rules and labour conditions, while Mexico’s priorities are at least focused on opening up the agreement to provide freer movement of goods, services and people within the continent.

President Enrique Pena Nieto’s government has also indicated that if Trump kills NAFTA, Mexico will move to cut tariffs. Within Mexico, members of the National Action Party — one of the country’s opposition contenders — have said they would begin moving toward a radical free-trade program, including unilateral tariff reductions. Guillermo Romero, economy minister for the central state of Guanajuato, a major car-making hub, told Reuters that if NAFTA were somehow terminated, “Mexico would open up to find different solutions and ways into trade.”

Instead of musing about a possible North American trade environment without NAFTA, Canada should consider joining Mexico in a hard-line joint position that directly confronts Trump’s trade protectionism. The United States may need NAFTA more than Canada and Mexico — a possibility acknowledged by many U.S. politicians and industries. No sector is more acutely aware of the NAFTA risk than the automobile industry.

As the Financial Post’s Alicja Siekierska reported this week, Trump’s trade strategy looms as a threat to the U.S. auto industry. The key element of the Trump plan is to raise the mandated North American content of automobiles manufactured on the continent to 85 per cent from the current 62.5 per cent. Trump also wants to add a requirement for 50 per cent U.S. content.

Vehicles and parts that don’t meet the Trump thresholds would face tariffs of 2.5 per cent — or maybe higher. The United States, in other words, would be forcing Canada and Mexico to participate in an uncompetitive tradeprotection scheme at a time when the global industry is becoming hyper-competitive.

Without NAFTA, the United States risks adding isolating elements to its auto sector at a time when the globalization of the industry continues to expand. If anything, in a world of rising auto production and demand, the U.S. auto industry and North American consumers should be looking for even lower barriers to trade, not more of them.

Mexico is already well on the way to trade expansion outside North America. A 2016 report from the Michiganbased Center for Automotive Research (CAR) says Mexico is poised to take advantage of its own aggressive freetrade agenda outside NAFTA.

Over the last 10 years alone, Mexico’s auto production has increased 140 per cent to six million units. According to CAR, “the ceiling for Mexican automotive manufacturing capacity has no bounds,” given the country’s lower costs, expanding port facilities on two coasts, increasing expertise and expanding infrastructure.

That unbound future includes much more than auto consumers in Canada and the United States. Mexico has free-trade agreements with 44 other countries that allow it to export vehicles duty free to areas that account for 47 per cent of global demand for new autos — including Europe, where Mexico is exempt from the 10 per cent tariff on imported vehicles facing U.S. auto makers.

The CAR report says “no other country in the world boasts an equivalent export environment. With easy access to both the Atlantic and Pacific oceans, Mexico’s access to global markets has been a powerful tool in attracting automotive investment. This is particularly true for automakers such as BMW and Audi, which specifically plan for their Mexico operations to be global export hubs for the vehicles produced there.”

NAFTA is still the heart of Mexico’s auto trade. But it is not Mexico’s only option over the long run. In 20 or 30 years, as Mexico’s economy expands under progressive adoption of free-trade policies, the country’s industrial development promises to propel it to new heights.

Instead of seeing Mexico as a trade-deficit enemy — a false premise to start with — Canada should join Mexico and take a stand for freer trade. Over the long run, the United States has everything to lose.