North American Brief Extended
Issue 16 | March 2024
HOT TAKES | North American Brief Extended
There’s been a lot of necessary speculation on what a Trump2 administration would mean for Canada and global trade, and also a lot of the same type of consideration about a Biden2 administration.
Speculation on the Biden administration’s impact on trade with Canada was replaced by evidence in the first week of March when the United States Trade Representative (USTR) released its 2024 Trade Policy Agenda and 2023 Annual Report to Congress.
In addition, The Heritage Foundation think tank last year released the 920-page Mandate for Leadership, a compilation by several notable authors providing an in-depth, department by department agenda for remaking the U.S. government and policy under a second Trump administration. The trade chapters are written by former Trump director of trade policy Peter Navaro.
To save you from wading into the breach, we provide an in-depth look at relevant sections from both documents. For a shorter version, see the March edition of North America Brief 16 (link).
Biden: President Biden’s 2024 Trade Policy Agenda and 2023 Annual Report to Congress
Navigating through the majority of the report’s expected pages touting administration achievements and promises kept, there are a few indicators for the year ahead. In no particular order, here’s what struck us about reading the report. Expect to see this analysis refined, nuanced and perhaps altered in forthcoming work as new analysis and information come forward.
- First impression is just how much Canada is joined at the hip to Mexico in most of the document. The U.S., of course, has a legion of interests and issues and a focus on Canada is not in the cards. And that is generally a good thing. Where Canada is signaled out is in reference to dairy under the USMCA, just the type of attention one does not want. This is yet another indicator of what may be in store for Canada at next summer’s review of the current North American trade agreement.
- In terms of forward-looking agreements, surprisingly the Indo Pacific Economic Framework (IPEF) is still alive, at least in the minds of the office of the USTR. Democrat Senator Sherrod Brown, a key voice on the trade file in the U.S., claimed he had convinced the Biden administration to remove the trade pillar from the IPEF agreement, but it appears that USTR didn’t get a memo on that from the Oval Office. In terms of thinking about Canada’s trade advantages in Asia this raises two issues. First, it underscores the need to press harder on advantages that Canada has in the CPTPP. This makes Canada’s chairing of the CPTPP commission this year even more important. The opportunity here is to strengthen the agreement, improve performance and ensure that it gives Canadian exporters advantages. In other words, assure that the CPTPP remains the first choice for serious trade engagement in the Asia Pacific region.Second is the need to continue to push the Biden administration, and other IPEF members, to let Canada join. The Biden administration claims that while it supports Canada joining, the decision is up to all members. The Americans are being a bit disingenuous; if they asked, the other members would admit Canada. It seems they’re going to make us do the hard work to earn our spot. This may require some horse trading on other trade issues on which Canada is engaged with IPEF countries. It may also mean that we at CWF owe the IPEF.
- The Americans seem serious, very serious, about their Latin American version of the IPEF, the Americas Partnership for Economic Prosperity (APEP) – their trade initiative that includes Canada. The report specifically calls for “Trade Ministers of the Americas Partnership countries to meet in person later this year and then at least once annually.” So this is not a one-off announcement and photo op. In an already crowded Latin American trade meeting calendar that fights for space in an already crowded global trade meeting calendar, it will be interesting to see where this fits. Like the IPEF, the APEP also has a strong element of confronting, or responding to, the China challenge.
- Where APEP differs from previous U.S. attempts to create a hemispheric trade pact is that this is a response to the rise of China in the Americas. China is the top trade partner for nine of the 20 economies in Central and South America, China leads in eight of 12 South American economies and one, Panama, in Central America. For the Americans, a hemispheric trade pact has gone from a “nice to have” to a “need to have to counter the existential threat from China.” Trade is a difficult political conversation in the U.S. and trade agreements more so. Countering China’s rise – in Asia – was not enough to get the IPEF across the finish line in Washington. It will be interesting to see if countering China’s rise – right next door – will make a difference. If the APEP agenda starts to gather steam, Canada will have to respond, which will include the application of increasingly pressed diplomatic and trade resources.
- The report has more forceful language on what the Americans are convinced is Canada’s failure to live up to its obligations on dairy market access under the new North American trade agreement negotiated by the Trump administration. The bottom line for the Americans is that the U.S. still does not have “meaningful access” to the Canadian market. The full quote is illuminating:
“For example, the United States will continue to hold Canada to its commitments through enforcement action under the USMCA. In January 2022, the United States won a USMCA dispute on Canada’s dairy tariff rate quota (TRQ) allocation measures. Canada’s revised policies did not fix the problem for U.S. dairy farmers, and despite the conclusions of the November 2023 panel report, the United States continues to have serious concerns about how Canada is implementing the dairy market access commitments it made in the USMCA. The United States will continue to work to address this issue with Canada, and we will not hesitate to use all available tools to enforce our trade agreements and ensure that U.S. workers, farmers, manufacturers, and exporters receive the full benefits of the USMCA.”
But here’s the rub, the U.S. has lost two dispute settlement cases, which indicates that the agreement is working as it was negotiated. This means that the U.S. did not get what it bargained for with the current agreement and therefore the agreement itself needs to be changed.
Trump: Mandate for Leadership – The Conservative Promise
This is over 900 pages of contributions by leading conservative thinkers. While it does not have any imprimatur of the former president, several former Trump administration officials, all true believers with no skeptics or those who served to contain and constrain the former president, contributed to the Heritage Foundation volume. At over 900 pages, we were only able to get through the 53 pages on trade policy written by Trump’s former director of trade policy, Peter Navaro and Kent Lassman, president and CEO of the Competitive Enterprise Institute.
An excellent in-depth analysis of parts of the volume is in the Washington Post (paywall). An extended quote for the Washington Post piece gives an overview of the tenor of the larger volume:
“Executing a conservative president’s agenda “requires a well-conceived, coordinated, unified plan and a trained and committed cadre of personnel to implement it,” the document says on its opening page. The phrasing quickly grows militaristic: The authors wish to “assemble an army of aligned, vetted, trained and prepared conservatives to go to work on Day 1 to deconstruct the administrative state.
Sometimes search and destroy gives way to search and replace. At the Department of Health and Human Services, for instance, the Reproductive Healthcare Access Task Force, which the Biden administration created five months before the Supreme Court overturned Roe v. Wade in June 2022, must be supplanted by a pro-life task force that ensures that all Health and Human Services divisions “use their authority to promote the life and health of women and their unborn children.” The document also asserts that the department should be known as the “Department of Life.”
But for Western Canada, what does it say about trade? It’s not that bad and may be good for Canada. Five things popped out from a quick read of the two trade chapters.
- The principal focus is on rebalancing the current WTO most favoured nations tariffs to match U.S. tariffs. The goal is to lower the U.S. trade deficit, which is viewed through the lens of protecting manufacturing jobs in the U.S. Canada’s trade surplus with the U.S. is about one-third oil, gas, etc. These are items that create U.S. jobs, not destroy or take them away. If the trade deficit focus of the writers and a returning Trump administration is really all about U.S. jobs with the trade deficit as a proxy for job loss, then Canada should not be a target for ire or action as would be China and other countries where the trade deficit stems from manufactured goods or things that could be competition to U.S. production. Canadian oil and gas exports create jobs in the U.S. Petroleum purchased from Canada by the U.S. is turned into gasoline by U.S. workers in U.S. refineries and then shipped by U.S. companies from U.S. ports to countries who pay the U.S. for the gasoline and diesel they receive. This is not the old saw that “we’re your biggest trade partner,” a line that leaves a bad taste in American mouths where trade is a dirty word associated with American jobs going overseas. Same story applies to natural gas which U.S. workers process in U.S. LNG plants for American firms to ship to foreign customers. Left unsaid is why Canada is so gracious as to ship jobs that it could have to the U.S.
- On the other hand, this ‘trade deficits from bad trade agreements equals job losses in the U.S.” means trouble for supply management. The trade chapters use dairy tariffs in Europe as an example of how ‘bad trade deals’ harm U.S. farmers and benefit their foreign competitors. Why the authors didn’t use Canada as the example is a mystery. But it makes a strong point – if relatively benign tariffs by the EU are enough to raise their ire, God help Canada with its use of tariff rate quotas. So, Western Canada should be okay. Dairy-heavy Ontario and Quebec, not so much.
- The real focus of trade policy under a Trump administration, as is increasingly the case with the Biden administration, is China. Here a quote is in order. Under a sub-section entitled The Fruitlessness of Further Negotiations “any further negotiations with Communist China are likely to be fruitless and dangerous” and “An equally clear lesson learned by President Trump, which he was ready to implement in a second term, was that the better policy option was to decouple both economically and financially from Communist China.” (Interestingly, the document exclusively uses the term “Communist China” to describe the country, but communist Vietnam is simply referred to as “Vietnam.” There is a not-so-subtle signal of intent in the language.) These are not negotiating bluffs like a 10 per cent surcharge on all imports that come from Trump late at night on Twitter. These are considered policy prescriptions – negotiating with China is not only pointless; it’s dangerous to the U.S.
- If the U.S. is going to get even more serious about decoupling (see item in next story), then this will have major implications as a Trump administration will look for Canada to join it in its ‘you’re either completely with us, or against’’ world view. The Navaro piece has 18 specific action items to confront China, which could put Canada in the crosshairs. This was our worry with the original, America Competes Act, the first U.S. attempt in 2022 to legislate a comprehensive response to China. As we said back then about the Americas Competes Act “What happens when the U.S., Canada’s biggest trade partner sets a new policy for its trade with China, which is Canada’s second-largest and fastest-growing trade partner, and drags Canada into the middle of its fight with China, going so far as to pick the lane for Canada to swim in the dispute and dictating which strokes Canada will use?” Canada dodged a bullet when the scope of the America Competes act was severely cut and turned into the CHIPs act. But under Biden and certainly under Trump, our luck will run out and run out soon.
- The Lassman section of the trade chapter contains a number of surprises including a call for the U.S. to rejoin the Trans Pacific Partnership agreement (apparently an indication that the CPTPP would revert to its former name), restore the WTO dispute resolution process, create a successor to the WTO open only to liberal democracies (how that jibes with Vietnam in the TPP is unexplained). These changes are unlikely but if anyone could get away with them it would be Don “Teflon” Trump. Having the U.S. back in the TPP would cost market share but should strengthen the ability of the agreement to protect Canadian interests in TPP countries.
The North America Brief is a compilation of stories and links related to the U.S. and Mexico’s relationship with Canada’s West. The opinions expressed in the links are those of the articles’ authors and don’t necessarily reflect the views of the Canada West Foundation and our affiliates.