By Carlo Dade
Published in the Calgary Herald, Edmonton Journal and Vancouver Province
July 3, 2020
It’s hard to get excited about a new North American trade agreement where the greatest gain in going up against Donald Trump was not losing what we already had. But no news, or excitement, is not necessarily good news.
This new agreement will harm Canadian business if relief and complacency dull our vigilance over increasing risks in trade with the U.S. and lead us to overlook the best conditions we have had to diversify our trade.
Absent from government sales pitches for this agreement is talk of economic gain. Objective, third-party modelling shows clear net welfare and GDP losses from this agreement. Yes, you read that correctly. There is also the opportunity cost, or loss, of not updating the agreement and ceding competitive advantage to trade blocs with more modern rules. In critical areas for modern trade like moving businesspeople, North America remains stuck back in the days of smoking on airplanes.
What gains there are in the new agreement are items largely already agreed between all three countries in the original Trans-Pacific Partnership agreement, which included Canada, the U.S. and Mexico. In effect, we have suffered close to three years’ worth of uncertainty and turmoil to get bits and pieces, but not all, of what was already negotiated and agreed upon five years ago.
That the Americans were content to largely go backward on trade, dragging Canada and Mexico with them, while the rest of the world moves forward with new, modern trade agreements is a sobering rejoinder to the relief felt in not having to fight the Americans anymore — on this front.
This new North American agreement does not end other fights or lessen uncertainty. Recent headlines of threats by the U.S. trade rep to immediately launch challenges under the agreement and rumoured new U.S. action on steel and aluminum are just two indications that risks that Canadian firms face under “America first” President Trump continue largely unabated. The new agreement protects only the auto sector from new, out of the blue, national security tariffs. Oil and gas, thanks to congressional action in 1980, is the only other sector with real protections against unilateral tariffs or worse actions launched by a presidential tweet as happened to Mexico last summer. While protection for oil and gas is good news for the West, the rest of the Canadian economy remains at risk from the Groundhog Day scenario of repeated unilateral presidential tariffs and the ensuing tit for tat retaliatory tariffs that invariably follow, dragging in unsuspecting and unprepared business as collateral damage — expand on how Canadian bourbon drinkers suffer when the U.S. imposes tariffs on steel.
Rather than relaxing or shrugging in indifference, Canadian businesses need to remain vigilant starting with double-checking and diversifying supply chains that are overly reliant on U.S. inputs.
Other issues, most notably grain grading, are settled in the agreement but not on the ground in the U.S. where there is still strong demand for further changes. The new agreement is, like country of origin labelling for beef, more of a truce, not a final victory. Businesses that faced contentious issues need to keep their eyes on these, not close them.
Even the benefits of the new agreement are more accidental than intentional but nonetheless important.
The new agreement narrows the attractiveness gap between the U.S. and markets where Canada has new and better trade agreements. Canada in essence now has two better NAFTA-type agreements: multi-party pacts with one set of rules to access multiple markets in Europe and, important for the West, around the Pacific Rim. That Mexico is also part of one of these trade blocs, the CPTPP, gives Canadian firms a diversification “backdoor” in being able to access Mexican parts for their supply and production chains to make goods to sell in the U.S. and around the Pacific.
More creative thinking like this, and less complacency may enable Canada to survive ongoing threats from the U.S. and, as the new agreement has done, make the best out of a bad situation in our own backyard.
Carlo Dade is the director of the Trade and Investment Centre at the Canada West Foundation.