Trump doesn’t hold all the cards in NAFTA talks
Prime Minister Justin Trudeau’s ill-considered efforts to mollify Donald Trump continue apace. The decision to keep sending Canadian soldiers to the war in Iraq is just the latest version.
The federal government’s entire defence posture and much of its foreign policy is focused on convincing the U.S. president that Canada is a loyal American ally. Ottawa’s hope is that if Trump thinks Canada is pulling its weight militarily, he will order his negotiators to go easy on this country during the upcoming North American Free Trade Agreement (NAFTA) talks.
Last month’s defence review won kudos from Washington because it promised that Canada would significantly increase its military spending, an important Trump goal.
Last week’s decision to extend Canada’s military mission in Iraq for another two years promises to be equally wellreceived by Trump.
Ironically, even as NAFTA dominates almost every aspect of Trudeau’s foreign policy, a new study calculates that the Canadian economy could survive quite handily without the trade and investment pact. But first, the war in Iraq. The latest version began in 2014, after then U.S. president Barack Obama belatedly realized that Daesh, also known as ISIS, posed a real threat to the Iraqi government. Canada joined during the fall of that year, committing six fighter jets and a few dozen special-forces troops to act as advisers.
Claiming that it was interested only in a noncombat role, the current Liberal government withdrew the fighter jets. But it expanded the number of onthe-ground advisers to about 200. Although these advisers actively take part in the shooting war, the government insists — against all logic — that they are not engaged in combat.
Last week’s announcement is not expected to increase the number of on-the-ground advisers. But they could be deployed anywhere in Iraq.
The announcement also commits a transport aircraft to the fight.
Up to now, Canada’s focus has been on training Kurdish fighters. But Iraq’s Kurds are preparing for an independence referendum in the fall that could put them at odds with the central government in Baghdad.
All of which is to say that this part of playing nice to Trump has its complications.
But is it necessary for Ottawa to be so Trump-focused? Does it matter if he trashes NAFTA?
The conventional wisdom holds that Canada’s economy would be devastated if the pact were scrapped. But a new study done by the Canadian Centre for Policy Alternatives argues otherwise.
Written by economist Pierre Laliberte and research fellow Scott Sinclair, the study — entitled “What is the NAFTA advantage?” — says that even without the pact, trade barriers between Canada and the U.S. would be relatively minor.
That’s because both countries adhere to rules set by the World Trade Organization that mandate minimal tariffs between member states.
Without NAFTA, 41 per cent of Canadian exports to the U.S. would still face no tariffs at all.
The remaining 59 per cent would face, on average, extremely modest tariffs. The authors calculate that the value of these extra tariffs would total roughly $4 billion a year - a relatively small amount when compared to annual exports of roughly $279 billion.
The authors also point out that Canada’s main aim in negotiating a deal with the U.S. — which was to obtain an exemption from that country’s often arbitrary trade laws — never materialized. The eternally recurring softwood lumber dispute is a testament to that.
The study doesn’t try to pretend that ending NAFTA would be costless. Some industries, such as agriculture, would be hit hard. Others, such as petroleum, would be barely affected. But it does demonstrate that, for the most part, Canada’s economy could purr on quite contentedly without the pact.
That, in turn, means two things. First, Ottawa can safely walk out of the NAFTA talks if Trump’s demands are too outrageous. Second, Canada’s government need not twist its foreign and defence policies out of shape just to candy up to him. It is possible to be independent.