Andrei Sulzenko is a former trade negotiator and is currently an executive fellow at the School of Public Policy, University of Calgary.
The recent fiasco in Helsinki and the severe pushback it provoked from U.S. President Donald Trump’s own Republican Party may prove to be a cathartic turning point in the dynamics between the U.S. administration and Congress. This self-inflicted damage to the presidency will perhaps make it easier for Congress to oppose other egregious policies that are clearly contrary to the U.S. national interest − notably on trade.
Indeed, there seems to be a growing recognition among Republicans that the exercise of untrammeled presidential power to impose illegitimate import tariffs is against their own electoral interests once trading partners start retaliating, and it becomes clear that the self-styled master negotiator has overplayed his hand and boxed himself into a corner from which there is no obvious face-saving exit.
In recent days, various bills designed to rein in the President’s power to implement trade actions have been mooted in the Senate, the body under the U.S. Constitution with authority over foreign trade. In the near term, whether such legislation will actually pass and ultimately overwhelm the President’s ability to veto the bill is less important than the political message that enough is enough.
The dynamic is now shifting for Republicans seeking election in November, from being dependent on affiliation with the President to becoming arm’s length from the President. The domino effect of Helsinki, tariff actions against allies and potentially special counsel Robert Mueller’s investigation into alleged Russian meddling in the 2016 election could accelerate this flight to safety.
Whether that thesis proves to be correct will play out over the next few months as the midterm electoral battle heats up. If so, it will certainly have an impact on the evolution of Canada’s trade battles with the United States.
The most likely scenario in this regard is that nothing much will happen bilaterally between now and the November elections. There are several reasons for this forecast.
First, the big play on trade is the U.S.-China dispute, a priority not only because of the magnitude of what is at stake, but also because Congress is more likely to support the President’s strategic objective of reducing long-standing Chinese protectionism, while looking the other way on tactics.
Second, growing tensions with Europe on trade as well as security issues will occupy a lot of the administration’s time and energy in finding a way to stabilize the relationship, even if at a low point.
Third, Mexico is becoming more prominent relative to Canada in the North American sphere. Mr. Trump has recently mused yet again about bilateral agreements with Mexico and with Canada, and has stated a preference for dealing with Mexico first, presumably sensing a possible meeting of minds with the incoming Mexican president. Besides, that is the bilateral relationship where the big U.S. trade deficit lies – the President’s fixation. In any event, Canada is largely a bystander if that is the way the U.S. side decides to proceed.
The one possibility that could spoil this overall benign short-term prognosis is a decision by the President to impose high tariffs on automotive products in the name of national security. This outcome is, however, unlikely for four reasons: first (and ironically, the weakest for this president), there is absolutely no case to be made that auto trade impinges on national security; second, the idea is vehemently opposed by U.S. business interests; third, it would significantly damage the U.S. auto and related industries and their workers, as well as consumers through much higher prices; and fourth, it would breach a red line in Congress, causing an inevitable legislative override. (Such an override is already being debated in relation to steel and aluminum tariffs.)
The auto-sector outlier aside, all these factors suggest that it should be relatively quiet on the northern front over the coming months. There may be occasional skirmishes, but there should be time for Canada to recalibrate its game plan.
At the top of the list is reconsideration of Canada’s insistence on a three-way negotiation. Several bilateral agreements would be a second-best outcome, especially in light of the potential impact on integrated North American supply chains. However, many issues are not trilateral and may be more amenable to resolution between just Canada and the United States or Mexico and the United States (Canada-Mexico issues are of lower priority). Hopefully, the Canadian team is working on that Plan B. The Americans and Mexicans surely are already at it.
The current lull does not suggest a time for summer relaxation. It will be important for the long-term health of the Canadian economy to resolve the trade challenges with the United States soon after the November elections. Indeed, to the extent that there is anything approaching a U.S. strategy, it is to drag out the negotiations, and therefore uncertainty, in order to weight business investment decisions in favour of the United States over Canada and Mexico. In these circumstances, the current trench warfare does not result in a stalemate, but in steady gains for the United States.