My pessimism on NAFTA was a bit overdone
Acouple of weeks after Donald Trump’s inauguration, I wrote a pessimistic column about his trade agenda and its implications for Canada. Since Canada is much more dependent on trade with the U. S. than the U.S. is on trade with Canada, our bargaining power is essentially non- existent. I argued our best hope was to simply take whatever hit Trump chose to inflict: any attempt on our part to retaliate would hurt Canada more than it would hurt the U.S.
In retrospect, my pessimism was a touch overdone. Not, I still think, about the wisdom ( or more precisely, the folly) of responding to U.S. trade measures by penalizing U.S. imports to Canada. Since the main benefit from trade is the ability to import goods and services more cheaply than they can be made at home, penalizing imports is self-defeating.
But I definitely overstated the power imbalance. While the United States certainly has a stronger bargaining position in trade negotiations, it is not so strong that Canada is obliged to accept any deal, of any form. For example, there’s the idea of a sunset clause that would automatically terminate a trade agreement after five years, at which point it might or might not be renewed. It would be almost impossible for firms to make any sort of medium- term plans in this sort of environment, and this heightened uncertainty would discourage investment. This reduction in investment would likely offset any gains from trade that such an agreement might produce.
This is not a serious proposal, but then again, we’re not dealing with a serious president, either. If it came down to choosing between living with the ever- present threat that the U.S. would abrogate the agreement in the near future, or an immediate U. S. abrogation, it would be better for Canada to simply refuse the demand and live with the consequences of a U. S. withdrawal. There are worse imaginable outcomes than not having a free-trade agreement with the United States.
But it may not come to that: I also underestimated the Trudeau government’s ability to deflect and defuse Trump’s trade agenda. At the very top, Trudeau’s considerable personal charm — accompanied by words and gestures designed to flatter the easily flattered president — set the tone for this phase of the Canada-U.S. relationship. If bilateral ties do end up being weakened, it won’t be because Canada didn’t try hard enough to maintain them.
And the prime minister isn’t the only one conducting this campaign: every asset available to the government at every level has been put in play. No other country has the sort of network of contacts that Canada has in the United States. The private sector has its own network of trade l obbyists; there are direct government- to-government contacts at the state and provincial levels; and there’s a cross-party web of personal contacts among elected officials in both Ottawa and Washington. The existence of this network was of course already in place before the Liberals came to power, but Trudeau’s government deserves credit for its skilful deployment.
There are signs that it is working, too: pro- NAFTA forces in the U. S. are making their voices heard. Although Trump can withdraw the U.S. from NAFTA on his own authority, he will require congressional co- operation to completely undo the treaty. (For example, removing Canada’s preferential treatment will require passing a bill in Congress.) Even if Trump opts for the grand gesture, Canada can still carry on the battle.
And there are hints that Trump knows that withdrawing from NAFTA won’t be that simple, and that he is simply going through the motions: there are reports of him assuring exporters that they shouldn’t worry about the agreement.
NAFTA won’t survive in its present form, of course: Trump needs to be able to declare victory on this file. But I’m less pessimistic about Canada’s trade future than I was at the beginning of the year.