Canada was Trump’s dry run for China
Playing chicken, gaslighting, and nasty, foreshadowing tweets — Canada’s experience with White House trade negotiations may be a distant memory now, but those recollections could prove useful during these days of U.S.-China brinksmanship.
As markets oscillate wildly, lurching from tweet to tweet, Canada has been there, done that, and can perhaps take a less panicked view of the trade war that’s turning the global economy upside down.
Of course, the U.S.-Canada relationship is different than the U. S-China relationship, but we were a dry run for the protectionist president. If there were a handbook on how Donald Trump’s White House handles trade negotiations, Canada’s experience would be a case study in many tactics.
Some of the points the handbook would make:
Playing chicken: Trump’s team has a penchant for issuing threats to win concessions. In the NAFTA talks, Canada and Mexico negotiated for many months with aluminum and steel tariffs in place, and the threat of auto tariffs hanging over them. With China, Trump has steadily and dramatically increased tariffs on Chinese imports, with more in the offing. Even when the other side hits back, the United States has persisted.
For Canada, the biggest threat was Trump’s declaration that NAFTA was the worst trade deal ever and that he wanted to tear it up — a threat that undermined confidence and investment in Canada’s economy for months on end. Such a threat is emptier with China, which is not as dependent on U.S. trade as Canada is. But the goal of the threats is the same.
Trade lawyer Mark Warner points out that Trump informed us all of this approach in his book The Art of the Deal. He takes extreme positions, forces a compromise and then claims victory of sorts. “That’s his style.”
Gaslighting: This term describes repeated lying by one person that causes another person to question their own experience of reality. It’s psychological manipulation to gain power. Brett House, Scotiabank’s deputy chief economist, applies the term to Trump’s trade tactics.
For Canada, it was the perception of Canada being a dirty player that heavily penalized American farmers and consumers and took the United States for granted. For China, it’s Trump’s repeated suggestions that the mounting tariffs are great for Americans — despite mounting signs that U.S. importers are passing along the costs to their buyers. In both cases, Trump aims to keep the U.S. public onside while destabilizing his adversaries.
“Trump is still gaslighting America,” House says.
Talking past each other: At the height of the NAFTA talks, Canada had three levels of negotiations at once, argues Laura Dawson, director of the Canada Institute in Washington. There were the nitty-gritty talks, with technocrats who were traditional, meticulous and made sense to the Canadian team. There was the lobbying of the business community, which was pro-free trade and wanted to have the certainty of a solid agreement. And then there was the White House, which intervened sporadically and unpredictably, trumping — sorry for the pun — everyone else’s talks.
China is dealing with a similar dynamic, although in this case, the White House is even more deeply engaged. And that involvement breeds huge amounts of market volatility, since investors are never quite sure where Trump will push the talks.
“It may very well be that he likes the drama,” Dawson says.
Managed trade: The bestcase result for both Canada and China is arriving at some kind of a managed-trade agreement with the U.S., a statement that rings true for many of the Americans’ trading partners, says Sarah Goldfeder at Earnscliffe Strategy Group.
In Canada’s case, concessions on dairy and rules of origin for the auto sector are prime examples of placing limits on the amount of cross-border trade in order to call victory. And Canada’s agreeing to quotas for steel and aluminum is probably the only way out of that tariff conflict with the U.S.
When it comes to China, made-in-China is just as popular as Trump’s Buy America agenda. If the sides are able to reach agreement, managed trade will likely figure prominently, Goldfeder says. “We are not going back to open trade.”
The end: It’s not over until it’s over. No one on any side of these trade negotiations trusts anyone and won’t take anything to the bank until papers are signed by leaders and passed by governments. Canada and Mexico were so close so many times and yet no new NAFTA has been applied. Punitive tariffs on aluminum and steel are still in place. When it comes to China, the U.S. wasn’t sure enough about vague commitments on intellectual property to call it a deal.
And so the volatility persists — as Canadians well know and are learning to take in stride.