Trump-Trudeau Bromance Secures US-Canada Trade Deal, not Mexico’s
The world of “trade theatre” has never been more engaging, particularly with a protectionist in the White House playing a starring role these days.
To Canadians, the main stage features three-way talks about reconstituting or scrapping The North American Free Trade Agreement involving the U.S., Canada and Mexico.
The diplomatic dance has been underway for months, but it’s apparent that an American-Canadian pas de deux moves toward creating a more robust bilateral relationship.
Indications are that the Canada-U.S. Free Trade Agreement of 1989 will be enhanced and a separate, asymmetrical trade arrangement with Mexico will occur.
The U.S. and Canada have been integrating steadily since the Second World War. But Trump’s election is accelerating the process due to his dissatisfaction with Mexico and avowed protectionism.
For Canada, the good news is that Trump’s team is very committed to, and aware of, the nuances and importance of the relationship. So are leaders Prime Minister Justin Trudeau and President Donald Trump who get along like kin, just as their citizens do.
Public pronouncements by the two leaders on trade talks contain flattering, coded commitments between the two countries. For example, Trudeau, in his most recent Washington press conference, said he supports NAFTA but noted that the two-way relationship is “strong and positive” and emphasized that “we share the same values and standards”.
Trump beamed about the fact that the two are “great and original allies” and “as close as ever”. He added that negotiations will “work out very well for both countries …(pause) and Mexico.”
Both profess to want a three-way deal, but the bilateral is the priority. Mexico joined six years later in 1994 but its labour rates remain one-third lower, its institutions remain weak and corrupt, and smuggling is a problem for the U.S.
By contrast, all’s well north of the border. Together, Canadians and Americans increasingly profit, marry, play, study, travel, invest, compete, and cover one another’s backs. The trajectory is clear and the two are destined to erase the border economically and guard a mutual perimeter as the Europeans have done.
So far, Canadians have tacitly accepted changes to facilitate integration. For instance, Ottawa in June pre-emptively announced $62 billion in new military spending over 20 years to meet The North Atlantic Treaty Organization (NATO) and The North American Aerospace Defense Command (NORAD) commitments, something that bolsters the partnership.
Other moves include approval of Keystone XL, mutual law enforcement initiatives, border security melding, the sharing of immigration information, and a pilot project to streamline trade through a one-port, two countries landing system.
A good guess would be that, once a deal is firmed up, a NORAD navy will be created (merging Canadian and U.S. navies, coast guards) in order to eliminate Arctic territorial disputes and to secure the coastlines Canada’s navy is too small to patrol.
And in return, Canada should obtain exemption from Buy America for its Canadian companies as well as from U.S. vehicle content requirements.
These are the major issues in talks, but headlines tend to concentrate on sideshows, namely Bombardier, dairy cows and poultry.
Both are being altered. While wrenching for some, both the airplane company and supply management systems have cost Canadian taxpayers and consumers billions of dollars in subsidies, and annoyed trading partners.
During these talks, Bombardier was slapped with 300 per cent tariffs by the U.S. Commerce Department following complaints by Boeing, upset at the loans and grants given to it by Ottawa and Quebec.
These tariffs would have bankrupted the company, but sent it into the arms of Boeing’s European rival Airbus. The European aircraft maker was given control over Bombardier’s stalled new series of jets for US$1 and will manufacture planes (if there are sales) at its Alabama plant, thus circumventing U.S. tariffs and creating jobs for Americans. It has an option to buy out the rest of the division if plane sales occur.
The subtext to this is that both Boeing and Airbus are subsidized but they dominate and Bombardier simply cannot compete.
Another issue is Canada’s supply-side system in dairy and poultry. This was exempted from the original trade agreement with the U.S. because the tradeoff was that Canadian farmers were protected from American exports but could not export to the U.S. However, the lack of competition costs families about $339 a year more in groceries.
Talks are looking at phasing out the system in Canada which will be better for Canadians. More competition will drive down prices and Canada’s sector with access to the U.S. market has an opportunity to emulate New Zealand after shedding its supply management system. It’s now the world’s biggest exporter of milk and dairy products.
Trade talks will continue for weeks, but when the curtain finally falls Canadians and Americans will continue to enjoy and prosper within a mutually beneficial, relationship that’s the envy of the world.
first published Financial Post