Trump’s NAFTA plans should be no surprise
It’s clear now that, regardless of what he told Prime Minister Justin Trudeau, Donald Trump wants to do more than tweak the North American Free Trade Agreement.
But it’s not at all clear how far the U.S. president intends to go.
A draft letter to Congress leaked to the media on Thursday lays out broad aims for the U.S. in the upcoming NAFTA renegotiations.
These aims can’t come as much of a surprise to the Canadian side. Some echo U.S. demands acceded to by Canada during talks for the now defunct 12nation Trans-Pacific Partnership pact. These include reducing or eliminating protection for Canadian dairy and poultry farmers.
Others echo concessions Canada made during its free trade talks with the European Union, including opening up more government procurement contracts to American firms.
The letter suggests this would be married to a demand that U.S. governments continue to use Buy American policies in their procurement.
A nonjudicial dispute resolution system that allows governments and firms to challenge one another’s trade penalties would be eliminated. That so-called Chapter 19 system often favours Canada.
But another nonjudicial dispute resolution system that allows corporations to challenge laws, such as environmental statutes that interfere with their profitability, would be kept. That so-called Chapter 11 system tends to favour U.S. firms.
In other words, the letter represents a deliberately lopsided partial wish list. Still, it is the partial wish list of the most powerful member of the agreement binding the economies of Mexico, Canada and the U.S. So it should be taken seriously. Does the letter mean Trump is mellowing? Many in the U.S. media thought so — largely because it didn’t reflect the usual apocalyptic language that the president likes to employ when discussing what he likes to call “the single worst trade deal ever.”
Fox News even used the “tweak” to describe Trump’s latest approach to NAFTA.
But I took Commerce Secretary Wilbur Ross at his word when he said on CNBC Thursday that Trump’s thinking about NAFTA hasn’t changed.
“The letter simply describes in broad terms the topics we will be discussing,” he said.
Interestingly, the draft letter includes long-standing Democratic demands that a renegotiated NAFTA include enforceable labour and environmental standards directly in the agreement.
Depending on how it is done, a labour standards provision could make it harder for firms exporting goods to the rest of North America to exploit Mexican workers. By reducing the wage differential between Mexico and the rest of the continent, that in turn could benefit Canadian and American workers.
In sum, the draft letter tells us three things.
First, Trump is not quite the wild man he purports to be. The draft letter is vague enough to encompass much of Trump’s make America great again campaign aims. Canada and Mexico could still emerge from these talks badly mauled.
But the U.S. president has signalled that he intends to achieve these aims through the bland and bloodless practices of standard trade negotiation. There is no longer any talk of the U.S. simply abrogating NAFTA.
“It looks like an all too familiar, although arguably even more aggressive, corporate-driven TPP-style agenda,” Scott Sinclair, a trade expert with the Canadian Centre for Policy Alternatives, told me in an email.
Second, Trudeau’s charm offensive — aimed at convincing Trump and other Americans that NAFTA is beneficial for them — has only half-worked. Trump appears to have accepted that NAFTA can be good for the U.S. His aim now is to make it work even better for his country — at the expense of Canada if necessary.
Third, Canada is still in the same old bind. Now that we have restructured our economy around NAFTA, we can’t easily do without it. The Americans are in a better position to go it on their own in North America.
In short, we don’t have much bargaining power. Without an alternative plan, we can’t just walk away from these talks if U.S. demands become too unreasonable.
Presumably, Trump knows this. He may think Trudeau the finest of fellows. But this ruthless deal-maker also knows that when it comes to NAFTA, the prime minister doesn’t have many options.
How far the U.S. president intends to go still remains unclear and he surely realizes Canada and Mexico don’t have much bargaining power