Lawrence Herman is a former Canadian diplomat, practices international trade law and is a senior fellow of the C.D. Howe Institute in Toronto.
As a Nobel Laureate once said, “The times they are a-changin’.”
The global trading system has been thrown into disarray with Donald Trump’s election and his clear disdain for international trade commitments – or, put another way, his stridently protectionist policies designed, he says, to make America great again.
This amounts to a decisive turnaround from the leadership role U.S. administrations have played since formulating the Bretton Woods agreements of 1947-48. Those American-led efforts produced the General Agreement on Tariffs and Trade (GATT) and ultimately the WTO Agreement of 1994, with the United States leading and cajoling other governments to agree to an orderly international trading system based on widely, if not universally, respected rules.
Now, it seems, that leadership role is no longer in play, incompatible with Mr. Trump’s thumping on the campaign trail, slamming the TPP and NAFTA so often that it’s impossible to imagine that these positions won’t dominate the new policy agenda on U.S. trade.
In effect, we’ve gone from a reasonably secure international trading system with known signposts and respect for rules to largely unknown and uncharted territory. All of this in the span of a few weeks.
Some observers say, with some justification, that we still need to see where all that rhetoric about the TPP and NAFTA being a “disaster” is leading. Fair enough. Protectionist bombast in the hurly-burly of a presidential campaign may not translate into actual anti-free-trade policies once Mr. Trump takes office.
It’s true we still don’t know Mr. Trump’s real agenda or who will comprise his entire trade policy team, notably his choice of the new U.S. Trade Representative and other senior trade officials. We also have the Congress in the background, with its very important role in trade policy as a check to presidential excesses.
But the signals aren’t propitious. There’s not much likelihood of the Trump administration looking kindly on its trading partners, Canada included. The message to the world is that trade is a zero-sum game and that all deals have to be weighed purely in terms of what’s in it for the United States, full stop. Forget mutual concessions and balanced outcomes.
So while we await some policy direction from Washington, we should have no illusions. Canada-U.S. trade could be in for some stormy times. Our government has to prepare for all contingencies under the worst-case scenarios with NAFTA on the chopping block.
That means not only having Plan B well developed but also having plans C, D, E and F ready to roll out as events unfold.
What are the broad indicators as we await those events?
Even before Mr. Trump’s election, international trade has been under some stress, the WTO recently reporting an increase in protectionist measures worldwide.
In the negotiating arena, efforts under the WTO umbrella to achieve some modest advances in discrete fields after the collapse of the Doha Round have been making glacial progress and same have stalled, showing how fraught these processes have become.
On the more-contained regional front, the TPP was indeed successfully concluded, but Mr. Trump has put that deal into deep-freeze. Some hope remains that the inter-Asian trade and economic negotiations, led by China but without U.S. involvement, can achieve some traction, but progress is reportedly slow.
Given the difficulties in the multilateral arena and the slow pace in other regional trade deals, and with the U.S. retrenchment from leadership in advancing global rules, Canada and the rest of the world will have to adjust to this new reality.
The times really are a-changin’.
As others have written in this paper, Canada’s top challenge will be to maintain access to the U.S. market paid for under both the original free-trade agreement of 1988 and NAFTA. These were the result of balanced concessions during arduous negotiations. Canada gained that access by granting benefits to U.S. exporters and investors and by adjusting national policies, particularly in respect of guaranteeing the U.S. access to Canadian energy supplies.
An increase in U.S. protectionism, whatever form that takes, will inevitably mean a turn to bilateral trade arrangements as countries seek some cover from the loss of access to the U.S. market.
For Canada, this means injecting some effort into ongoing bilateral trade talks with Japan. Negotiations with China have been hinted at and the government may choose to add some steam to that file as well. There are also the stalled bilateral Canada-India negotiations that could be given a push.
Other countries will also see the need to solidify bilateral links as a hedge against reduced access to the U.S. market and an increase in U.S. protectionism, whatever form it takes.
This isn’t to suggest the sky is falling. Global business will continue through multiple supply chains and commercial arrangements.
However, once the Trump administration takes over, the established order of things will certainly be changed.
We’ll be in uncharted territory with the largest ship being captained by someone that doesn’t read or respect the rules of navigation.Report Typo/Error
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