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Most trade disputes follow a predictable pattern. Tempers flare, opposing sides make war-like threats and then officials quietly broker a deal. End of story.

Investors are apparently betting that’s the case now. Stock markets rallied in recent days on optimism that Donald Trump may not be hell-bent on starting a global trade war after all.

There is some evidence the U.S. President may be softening his tough-guy stand on trade. He’s exempted Canada and several other countries from planned tariffs on steel and aluminum and reworked a trade pact with South Korea. Chinese and U.S. officials are apparently talking in an effort to defuse tensions over Washington’s move to put a 25-per-cent tariff on a wide swath of Chinese imports.

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A Chinese worker sorts hot red steel at a plant in Zouping in China's eastern Shandong province. President Trump has imposed tariffs in a move that has prompted fears of a trade war.-/AFP/Getty Images

And, finally, Washington has tempered its demand for a strict 50 per cent U.S. content requirement in autos as part of the renegotiation of the North American free-trade agreement.

So does that mean Canada and the rest of the world can relax, confidant that the familiar trade-war-looms, trade-war-averted scenario is taking shape?

Hardly. Mr. Trump and his top trade advisers have not budged from their America First agenda. Their objective remains to tilt the global trade balance in the favour of the United States through tariffs, threats and bullying.

The suspension of planned tariffs on Canadian steel and aluminum is a case in point. The Trump administration has made it clear that the reprieve is temporary – to May 1 – and that Canada will be hit with tariffs if the United States doesn’t get a NAFTA deal it likes.

Far from a reprieve, the exemption is like negotiating with a gun to the head.

“I can assure you, if we don’t get a better deal within the context of NAFTA from Canada and Mexico and refigure this, we’re going to have something happen,” White House trade adviser Peter Navarro told CNN recently.

And while the United States may have dropped its demand on auto content, a number of other deal-breakers for Canada remain on the table. These include reopening NAFTA every five years, dismantling the tariff wall that protects Canada’s supply-management system in dairy and poultry and scrapping Chapter 19, which allows Ottawa to appeal U.S. anti-dumping and subsidy cases.

The jeopardy for Canada remains high in the NAFTA talks. RBC Asset Management chief economist Eric Lascelles says the probability of a NAFTA deal has increased in recent weeks, but it may not be to Canada’s liking.

“A deal of some sort is becoming more likely, though with no guarantee that it is a good one,” he says in a research report.

Mr. Lascelles puts the odds of a bad outcome for Canada at 40 per cent; 60 per cent for something more benign.

Beyond the NAFTA talks, Canada is also embroiled in disputes with the United States over newsprint, softwood lumber and solar panels. The Trump administration has imposed steep tariffs on all three products – moves Ottawa says are unjustified.

What is most troubling in all this is that Canada and the Trump administration are at odds over how trade works. Mr. Trump sees imports of anything as an economic loss to the United States. He has repeatedly − and wrongly − claimed that the United States imports more from Canada than vice versa, even though the two countries have been in near perfect trade balance for the past three years.

Canada, on the other hand, sees two economies that are deeply integrated, mutually dependent and stronger as a result. In industries such as autos and steel, products often cross the border numerous times before reaching customers, with value added along the way. The result is that it’s often difficult to tell what an import even is.

Consider a quintessentially American vehicle such as General Motors’ Chevrolet Bolt EV. It’s assembled in Michigan, with 26 per cent of its content manufactured in Canada or the United States. More than half the vehicle, including its engine and transmission, comes from South Korea.

Canadian-made pipes or coated steel are often made with U.S. primary steel and then shipped back to American customers by steelmakers with operations in both countries.

In other sectors, Canada is a reliable supplier of things the United States does not produce in sufficient quantities to sustain its growing economy. Lumber, newsprint and aluminum are classic examples.

Unless the U.S. government abandons its hard line and embraces economics 101, it is hard to envision a good outcome for Canada in the NAFTA talks, or any of the other costly continuing disputes.

Only a post-Trump era can fix that.

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