In his first statement on trade as U.S. President, Donald Trump declared that the United States will withdraw from the 23-year-old North American free-trade agreement that gives Canada and Mexico preferential access to the U.S. market if he cannot extract better terms for American workers.
This statement on the White House website confirms a campaign pledge and followed a remarkable inaugural address by the celebrity businessman-turned-politician where he signalled a more protectionist approach to international commerce that would restore factory jobs lost to foreign countries.
Mr. Trump also pledged to withdraw from the Trans-Pacific Partnership accord, a deal to create U.S.-style trading rules for Asia as a means of countering Chinese influence in the region.
Toronto trade lawyer Lawrence Herman called the speech "aggressive and even belligerent" and said it reflects "a reversal of 70 years of U.S. trade policy" where Washington sought to stabilize and grow world trade.
The United States was instrumental after the Second World War in developing global institutions and arrangements that replaced a beggar-thy-neighbour approach to foreign trade with an international economic order premised on mutual benefit.
Mr. Trump said the era of co-operation is over in international trade.
"From this moment on, it's going to be America first," Mr. Trump said Friday on Capitol Hill after taking the oath of office.
"We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs. Protection will lead to great prosperity and strength."
He promised to bring back the outsourced jobs that have left "rusted-out factories scattered like tombstones across the landscape of our nation."
Mr. Trump's arrival in office will hand the Justin Trudeau government its greatest challenge yet as Canada must try to avoid being sideswiped in a protectionist backlash largely aimed at China and Mexico.
Perrin Beatty, president of the Canadian Chamber of Commerce, said Mr. Trump's speech sounded "a bit like Smoot and Hawley," referring to the 1930 law sponsored by two American congressmen that raised U.S. tariffs on 2,000 foreign imports.
Mr. Beatty said Canada's biggest allies right now are the governors of the 35 American states who count Canadian customers as their biggest export market and who could be harmed by new protectionism. "Protectionism begets protectionism. They build walls against Canadian products and Canadians build walls against their products," he said.
He urged Canadians not to overreact before seeing what measures Mr. Trump will take, saying comments from Wilbur Ross, the new President's pick for Commerce Secretary, have "made it clear that Canada is not the target here."
Former Republican House speaker Newt Gingrich told The Globe and Mail Friday that he expects Canada will not end up in the gunsights of Trump trade policy because Canadian and U.S. industries are fairly integrated, saying "Canada may be the least affected country in the world."
Mr. Trump has already signalled – through a series of tweets aimed at individual auto makers – that the auto industry will be a key focus for the new administration as it aims to win back jobs that have shifted to Mexico, or at least make sure that car companies do not increase vehicle production in Mexico at the expense of U.S. workers.
One way to do that would be to insist on a minimum amount of U.S. parts in every vehicle made in North America, ending the current NAFTA rule which requires a regional content value of 62.5 per cent in all vehicles. Under the existing free-trade agreement, that content can come from any one of the countries, although in practice vehicles contain parts from at least two of the NAFTA nations and often all three.
"The trade doctrine from the new administration appears focused on clear rules of origin and strong instruments of enforcement – dynamics designed to restore production in the American heartland," said Flavio Volpe, president of the Automotive Parts Manufacturers' Association of Canada, which represents Canadian parts makers. "Given our unique partnership with the U.S. Great Lakes and Midwest industrial sphere, the Canadian auto sector is well-positioned to be a positive contributor to that NAFTA discussion."
The Canadian Steel Producers Association said the existing NAFTA deal has worked well for its members and the manufacturers it supports.
"Our steel trade with the United States is evenly balanced, with approximately six million tons of steel imported into Canada from the U.S. and another six million exported from Canada to American customers," Joseph Galimberti, president of the association, said in an e-mail. "This trade is crucial to each economy."
Negotiations on a new trade agreement should focus on further reducing barriers to that steel trade, Mr. Galimberti said.
With a report from Laura Stone in Washington