The options if Trump kills NAFTA
If U.S. President Donald Trump deepsixes the North American Free Trade Agreement, there are essentially three things that Canada can do.
It can try to salvage a bilateral deal with the U.S.
It can, in concert with Mexico, keep what remains of NAFTA on life support in the hope that Trump will eventually be replaced by a president more amenable to free trade.
Or it can accept that the idea of continental economic integration is dead and strike out on a new path.
The choice Trudeau’s Liberal government will make is unclear. What is clear is that Ottawa underestimated how much Trump — and the voters who back him — despise NAFTA.
When Trump calls the pact tying together the economies of Canada, Mexico and the U.S. the worst deal ever, he means it.
Talking to reporters in Washington Wednesday after an inconclusive meeting with Trump, Trudeau said Canada has always been prepared for unpredictable twists and turns in the NAFTA talks.
But on this topic, Trump has been both predictable and consistent. He thinks Mexico is using NAFTA to hose the U.S. He prefers bilateral agreements to multilateral deals like NAFTA, a point he repeated to reporters.
And while he has fewer complaints with Canada (at one point he said the trade relationship need only be “tweaked,”) he does make demands that Ottawa would find hard to accept.
One such demand is the elimination of a provision that allows the NAFTA signatories to challenge one another’s trade practices before an independent panel. Canada sees this as a necessary to prevent the U.S. from acting even more arbitrarily than it usually does.
Trump sees it as an infringement on American sovereignty.
In the talks, Trudeau’s strategy has been to use sweet reason to persuade not only Trump but U.S. officials at all levels that NAFTA is good for America. The prime minister has also set out to personally charm the president.
The charm worked; Trump said how much he likes “Justin.” But the sweet reason did not. No matter how many graphics are produced by the Canadian Embassy in Washington, Trump’s base still doesn’t like NAFTA. Neither do a good many Democrats, including the leadership of the trade union movement.
For that matter, neither do a good many Canadian trade unionists.
Most important, the president himself has not been moved. His strategy has been to make maximal yet unyielding demands. If Canada and Mexico agree to these demands, then Trump wins. If they don’t agree and NAFTA falls apart, Trump also wins.
This may not be normal bargaining. But it is bargaining Trump style.
So what does Canada do if the talks fall apart over Trump’s intransigence?
First, it can try for a bilateral deal with the U.S. Indeed, if NAFTA is terminated, the 1989 Canada-U.S. Free Trade Agreement will automatically come into play again. But should that happen, Trump is likely to demand that it too be renegotiated, which would put Ottawa back in the same soup.
Second, Canada and Mexico could keep the shell of NAFTA alive until Trump is replaced. This is the strategy Japan hopes to use with the remnants of the 12-nation Trans-Pacific Partnership, a trade deal from which Trump has already removed the U.S.
But like the Japanese gambit with the TPP, any attempt to keep NAFTA minus the U.S. alive would be based on the assumption that Trump is an accident of history, an anomaly in a world still defined by globalization.
In fact, it may make more sense to view Trump as the visible expression of a much more deep-seated reaction in the U.S. against globalization. If that’s the case, attempts to keep alive NAFTA and pacts like it just won’t work.
Third, Canada could try something new. It could look beyond North America.
It would still be a trading nation. In fact, a recent study by the Canadian Centre for Policy Alternatives notes that even without NAFTA, 41 per cent of Canadian exports to the U.S. would face no tariffs, while the remainder would face, on average, only modest ones.
All of which is to say that ending NAFTA need not result in the severing of all economic ties to the U.S. But, by forcing us to look for other markets and other trading partners, it could lessen our dependence on Washington, which wouldn’t be such a terrible fate.