NO ONE SHOULD BE FOOLED INTO THINKING CANADA HAS WON THE TRADE WAR WITH THE UNITED STATES. IT’S NOT A CATASTROPHIC DEFEAT BUT MAKE NO MISTAKE, WE ARE NOW IN A NEW ERA OF MANAGED TRADE.
‘Today is a great day for Canada,” Justin Trudeau proclaimed, sounding like King Pyrrhus of Epirus, just after he lost the bulk of his army in battle against the Romans.
As with Pyrrhus, another victory like today and we will be utterly ruined.
Trudeau claimed the trade deal signed with the Americans and the Mexicans will prove good for workers, businesses and families — that it removes uncertainty for manufacturers and improves labour rights across North America.
He’s right that the unpredictability of the situation has been eased and the threat of punishing auto tariffs removed — for now.
The widespread sense of relief, if it endures, could help propel him back into power next year.
But to trumpet the agreement as the result of some kind of grand strategic vision — “we are on the right track and we didn’t get here by accident” — is to fundamentally misrepresent what has just happened.
Trudeau talked about a free trade network now in place “from Singapore to Kiev,” helping to push merchandise trade to the highest levels in history. But, not to put too fine a point on it, Canada has been played.
Donald Trump used what he called “the power of tariffs” to bully his trading partners into capitulation. He made clear his intent to pull investment back into the U.S. and, despite his eccentricities, has managed to do exactly that.
We are now in a new era of managed trade, where the U.S. has the ability to cap Canada’s growth.
Take the agreed exclusion of Canada from section 232 tariffs on autos. Canada would only fall foul of 25 per cent auto tariffs if passenger vehicle exports were to reach 2.6 million units a year — significantly above the 1.8 million units sold south of the border now. But no investor is going to build a new car plant in Canada knowing the prospect of crippling tariffs still exists, if that threshold is crossed.
A similar quantitative cap is likely to apply to steel and aluminum, if and when that tariff is removed — and it will prove a similar disincentive to investment.
“It’s the preservation of a 25 year-old status quo,” said James McIlroy, a trade consultant at McIlroy and McIlroy in Toronto. “This is a silent job killer and it’s not good for Canada.”
It is fair to point out that Trudeau had a gun at his head when he signed the deal — Trump said he was “totally prepared” to use tariffs, and only a fool would disbelieve his capacity to do so.
It is fair also for Trudeau to attempt to claim victory. It was a Liberal minister, Sir Clifford Sifton, who once said the main business of Canadian foreign policy is to remain friendly with the U.S., while preserving its own selfrespect.
Trump is in the process of steamrolling the Chinese — what chance did any Canadian negotiator really have?
But no one should be fooled into thinking Canada has “won” — unless by “win”, you mean the avoidance of catastrophic defeat.
There is a clause that stipulates “entry by any party into a free-trade agreement with a non-market country shall allow the other parties to terminate this agreement”. What prospect now a Canada-China free trade deal?
On dairy, McIlroy said the “third wave” to hit the supply managed industries, in the wake of the European and Trans-Pacific trade deals, will cause serious problems for farmers. They will likely be well compensated. “But how can you compensate someone for a business model that no longer works?” he said.
In the words of Larry Kudlow, Trump’s economics adviser: “Canada gave very graciously.”
This country’s dependence on the market in the United States has been stripped bare; the president’s enthusiasm for throwing around his economic muscle has revealed Canada’s tributary relationship to a U.S. administration, which is now intent on managing the relationship in a very different fashion than we have been used to in the last 25 years.
Some of this stuff is quite worrying when it comes to Canadian sovereignty — for example, the creation of a macroeconomic committee with representatives from all three countries to consider exchange rate policy. What does that mean for the Bank of Canada’s independence?
There is scant evidence of the list of “key demands” tabled by Canada in the early going — progressive trade staples like environmental standards, gender rights, Indigenous rights and freer movement of professionals. There is an environment chapter but it doesn’t even mention climate change.
The Trudeau government has caved on just about everything, as the cost of preserving peace.
The chapter 19 dispute resolution clause was retained as a fig leaf; Canada gets a diluted sunset clause provision and wins on new labour standards for Mexican autoworkers, because in those instances, Trudeau’s interests aligned with Trump’s.
The president heralded the deal as “truly historic news for our nation — indeed for the world”.
He savoured the sound of “USMCA” as the acronym for the new deal. “It has a good ring to it,” he said.
This deal is fundamentally a story about the reassertion of U.S. power. As Canada’s former ambassador to Washington, Charles Ritchie, wrote in his memoir Storm Signals, the president (in this case Lyndon B. Johnson) never listens, “or at any rate never listens to foreigners. The phrase ‘consultation with allies’ is apt to mean in U.S. terms, briefing allies, lecturing allies, sometimes pressuring allies … The word comes from Washington and is homemade.”
Plus ça change.