Back in early June, a top Canadian trade negotiator told me bluntly that what he didn’t want was the United States doing a separate deal with Mexico on autos and then turning to Canada. Ottawa would then have lost leverage.
What happened was worse. The U.S.-Mexican pact is not just an agreement on cars but a trade package that, while not finalized, is comprehensive.
What happened was that Ottawa was deceived and double-crossed. While talks proceeded with Mexico, Canadian negotiators asked to be let in. The answer from U.S. Trade Representative Robert Lighthizer was “no.” The talks, he said, were only on differences particular to Mexico around auto manufacturing. No need for Canada’s presence.
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That was a load of hokum. Key issues were on the table. And Mexico was hardly being candid about it, either.
The upshot is a major embarrassment, with headlines such as this in The New York Times: “NAFTA deal is set, shunting Canada to the sidelines.” Worse is the sight of an emboldened U.S. President Donald Trump talking like he has a gun pointed at Prime Minister Justin Trudeau’s head. Buckle under, boy, give us what we want or we’ll slap auto tariffs on you.
Ottawa should not have been all that surprised at what happened. Six weeks ago, Mr. Trump warned that he might very well negotiate a separate trade pact with Mexico then deal with Canada at a later time. He wasn’t taken seriously enough, even though he had long stated a preference for bilateral side deals as opposed to a tripartite one.
Why did Mr. Trump opt to to seek an agreement with Mexico before Canada? One reason was that after his blow-up with Mr. Trudeau at the Group of Seven Quebec summit in June, relations with the Prime Minister turned ornery. Foreign Affairs Minister Chrystia Freeland’s prickly speeches about Mr. Trump’s approach to internationalism didn’t help either.
Another was that the Mexicans were showing more flexibility in negotiations than Ottawa. The United States saw an opening to make more headway with them and did so.
But to hear the same Canadian trade negotiator who worried about lost leverage talk now, it’s not so bad. People who are saying the sky is falling have got it wrong. Canada is in a tough situation, he concedes, but a deal is still well possible. Worse would have been if the Mexico-U.S. talks had collapsed. Their success means there is something to build on. In their preliminary deal, there is a lot that the Canadian side can live with – such as a much longer sunset clause.
On autos, Ottawa and Washington were close on a big new deal before the Mexico-U.S. side pact. A remaining hurdle is a dispute-settlement mechanism, which Canada has been insisting on but Mexico did not. An even bigger sticking point with Mr. Trump is Canada’s tariffs on dairy products. But the Trudeau government, while not abandoning its supply management system, is prepared to compromise on the tariffs.
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Essentially, it has no choice. Ottawa is backed into a corner. It can’t afford to see NAFTA collapse while Washington and Mexico work to ratify a bilateral package, which is extremely difficult given U.S. trade laws. Such an outcome would constitute one of the biggest negotiating failures in Canadian history. Another predicament is the timing. Given complications arising with a new Mexican government taking office on Dec. 1, a deal has to be made quickly.
The situation raises all kinds of fears that the Trudeau government will cave on any number of U.S. demands to avoid disaster. While it has won plaudits for its handling of the manic Trump administration, the reality is that it has little to show for it. Trade negotiations started a year ago. There’s been little progress. Steel and aluminum tariffs have been levied. The Trudeau-Trump relationship has gone downhill. There’s the threat of auto tariffs.
Some in government circles make the argument that dealing with Mr. Trump has been next to impossible, an example being his wild rationale that Canada poses a threat to American national security to justify launching the steel and aluminum tariffs.
It’s a valid point. But not so in the case of the Mexicans. They’ve had to deal with the manic man too. They didn’t get hoodwinked, and they made a deal.
Canada, as yet, has not.