By Carlo Dade
Published in the Financial Post
August 29, 2019
Debate in Canada over ratification of the new North American trade agreement (NAFTA 2.0) is focused on the wrong issue: whether Canada “won” or “lost” the negotiations. That draws focus from the more critical issue: understanding that the new NAFTA does little to protect Canadian business from its greatest threat, namely, a U.S. president who has the ability and willingness to unilaterally and idiosyncratically impose tariffs and threaten trade. With negotiations over and a deal reached, Canada must — counterintuitively — maintain or even increase our outreach and advocacy to protect our interests in the US.
First, however, we need to stop arguing about how well or poorly we did in the negotiations. Dealing with the Trump administration was never about improving NAFTA for all three countries. We had already done that with the Trans-Pacific Partnership (TPP) trade agreement, which, since it included Canada, Mexico and the U.S., was a de facto updating of the old NAFTA. When the Trump administration withdrew from TPP, calling it a disaster and one of the worst trade agreements ever, we were in trouble.
The president wanted more for the U.S. out of NAFTA but was not offering more in exchange. NAFTA 2.0 was therefore always going to be a case of limiting what more we had to give up simply to maintain access to the U.S. market.
Recent modelling by Dan Ciuriak shows that NAFTA 2.0 is not win-win-win but lose-lose-lose: all three countries, including the U.S., suffer losses under the new agreement. That’s not surprising, given that the new deal partly undoes NAFTA 1.0’s liberalizations. But with the Trump administration having set out for even greater retrenchment, fighting over how little was gained is a mistake; we need to celebrate how little was lost. We also need to realize that the end of the NAFTA negotiations is not the end of our fight.
President Trump recently gained authority to impose national security tariffs on autos. A side letter in the new NAFTA only partly shields Canada’s auto sector against such measures. Canada’s oil exports are better protected but only because Congress amended its delegation of tariff power to the president in 1980, weakening his ability to impose national security tariffs on petroleum and related products.
Practically everything else in Canada’s economy has only a 60-day grace period should the president impose national security tariffs on its products. But there is even greater danger: President Trump does not need the pretext of national security; the 1977 International Emergency Economic Powers Act gives him almost unlimited power to restrict trade. And he has already used it, without even the minimal deliberation and warning that accompanied the steel and aluminum tariffs, to threaten across-the-board tariffs on Mexico in pressuring that country over refugees. We could be next.
These powers are delegated to presidents by Congress and, as was the case with petroleum, only Congress can rein in the president. Not being absolutely clear on the inability of the new North American agreement to protect the Canadian economy from the threat of unilateral tariff action — the tweet of Damocles hanging over it — would be a huge mistake; not being prepared to deal with this threat an even bigger one.
In anticipation of future protectionist outbursts, we need continuing engagement in the U.S. both by the private sector and by all levels of government. This means more visits by Canadian premiers, not to Asian markets, but to U.S. states to meet local officials who have influence with Congress that no ambassador can have. It means the federal government and private sector continuing, if not increasing, advocacy spending that was ramped up for the NAFTA negotiations. Lacking a vote in Congress, this is our only means to try to prevent or mitigate unilateral actions by the president. Increased advocacy spending is the last thing that comes to mind when negotiations end and a deal is reached, but in this case it’s indispensable.
NAFTA 2.0, like its predecessor, will be invaluable for facilitating trade when there are no problems with the Americans. But with this president, and with most of his potential Democratic replacements, there are likely to be more and more serious trade storms from which the new agreement will not shelter us. We need to prepare for this reality. A good question for this election is not who the party leaders think won or lost the negotiations but how they intend to run a permanent full-court diplomatic and political press in the U.S.
Carlo Dade is director of the Trade and Investment Centre at the Canada West Foundation and a senior associate at the Center for Strategic and International Studies in Washington D.C.