Fraser Forum

Trump’s NAFTA plans—what they mean for Canada

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President-elect Donald Trump’s economic plans are taking form as he chooses his cabinet and announces his agenda for his first 100 days in office. One clear message is that the United States will withdraw from the Trans-Pacific Partnership (TPP) trade deal. Trump recently announced in a video outlining his future administration’s agenda that he will take executive action to scrap the TPP on his first day in the White House. He also indicated he was willing to negotiate "fair bilateral trade deals."

While Trump has yet to make any specific announcements about his plans for NAFTA, news reports suggest that Trump’s transition team has targeted Canada’s softwood lumber and livestock exports as the most contentious immediate trade issues between Canada and the U.S.

In the case of lumber exports, it seems likely that the U.S. government will set a quota or limit on Canadian shipments to the U.S. In the case of livestock, the U.S. appears set to re-introduce country-of-origin labelling rules that require beef and pork products to be sold with stickers detailing their origin. Those rules also require U.S. feedlots and packaging plants to keep Canadian livestock and meat separate from U.S. livestock and meat products. Any such initiative would represent the reintroduction of a U.S. policy that the World Trade Organization (WTO) ruled last year was a violation of international trade rules and should be removed.

As frustrating as it will be for Canada to revisit old bilateral trade disputes, Canadian trade negotiators have little choice but to challenge the U.S. actions once again, preferably at the WTO level. By concentrating future trade dispute resolution activities at the WTO level, Canada and Mexico might bring greater political leverage to bear on a Trump administration, since any U.S. failure to abide by WTO rulings would compromise the status of the U.S. as a reliable trading partner in the multilateral context. Clearly, if Canada challenges U.S. actions, the U.S. could threaten to scrap NAFTA. However, the costs to the U.S. economy from ending free trade with Canada are likely to be substantial, and significant pressure will be brought to bear on the administration by U.S. business leaders and many state governors not to do so.

To be sure, the U.S. might well bring other issues forward for renegotiation under the NAFTA. Not all might be difficult for Canadian negotiators to accept. For example, it has been suggested that the Trump team will seek to remove a NAFTA provision that allows Mexican and Canadian companies to challenge U.S. regulations outside of the court system. Many Canadian environmental groups and others have sought to have Canada remove that same provision so that Canadian courts, and not international tribunals, would be responsible for adjudicating challenges to Canadian regulations by foreign companies.

Given the importance of access to the U.S. market to the Canadian economy, Canadian officials will need to make the best deal they can to maintain relatively open access to American markets. In this regard, it would be timely for the Canadian government to initiate an outreach program that “educates” U.S. politicians and opinion leaders about the importance of bilateral free trade to the economies of many U.S. states. At the same time, Canada should pursue free trade initiatives wherever favourable opportunities exist.

Most immediate is the implementation of the CETA with the European Union. While Japan has indicated disinterest in a TPP without the U.S. as a member, Canada might try to rally support among other signatory countries to salvage the agreement. While a trade agreement with Great Britain cannot be concluded until Great Britain actually leaves the EU, there’s no reason why negotiations cannot get started sooner. Indeed, Canada might consider spearheading (with Great Britain) a multilateral free trade agreement among Commonwealth nations.

Finally, Prime Minister Trudeau might hasten the initiation of talks with China about a bilateral trade agreement between Canada and China. Alternatively, Canada should consider joining the ongoing negotiations led by China concerning a free trade area of the Asia Pacific.

An aggressive pursuit of trade deals outside of North America would provide Canadian companies with easier access to non-U.S. markets and provide Canadian consumers with lower-priced goods from other countries. It might also have the salutary effect of alerting an increasingly populist U.S. polity that U.S. protectionism has real costs to American consumers and businesses, including increased foreign competition facing U.S. exporters to Canada.


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