Eddie Goldenberg is a senior partner at Bennett Jones, LLP and from 1993-2003 was senior policy adviser and then chief of staff to prime minister Jean Chrétien.
Many Canadian commentators argue the “deal” on NAFTA between Mexico and the United States has thrown Canada under the bus; that the “divide and conquer” strategy of the U.S. combined with threats by Donald Trump to impose huge tariffs on Canadian automobile exports or to abrogate NAFTA entirely has left little choice for Canada but to capitulate to unpalatable U.S. demands. This is wrong. By entering into a bilateral deal with Mexico, the United States has unwittingly strengthened the hand of the Canadian negotiators.
Despite Mr. Trump’s bluster, U.S. negotiators and their Mexican counterparts must realize that the U.S.-Mexico “deal” on its own is a total nonstarter in Congress without Canada. Mr. Trump can tweet and demand that Congress “not interfere with these negotiations.” Whether he likes it or not or whether he understands it or not, he does not have absolute power. On matters of trade, Congress has extensive authority. On the North American free-trade agreement, the President only has authority by law to put a trilateral deal, not a bilateral deal, to Congress with few procedural constraints. A bilateral deal with Mexico would be subject to all the procedural obstacles that would in practice make it a complete nonstarter for years to come.
The President has another insurmountable problem. While he can threaten in a tweet to withdraw from NAFTA, doing so is far easier said than done. While NAFTA was negotiated at the executive level, it was implemented in the United States by a vote of the Senate and the House of Representatives. The best legal opinions are that it can only be revoked by a similar vote in the Congress, and not by the unilateral action of the President. The Canadian government has been extremely successful in its lobbying effort in the United States to convince American legislators of the benefits of NAFTA to the U.S. Therefore, a threat to withdraw from the trade agreement is once again a mere bluff by Mr. Trump because he will simply not get the required Congressional support to do so.
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The President has resorted to another threat. If Canada doesn’t capitulate and sign a deal on U.S. terms, then he will impose a 25-per-cent tariff on exports of Canadian automobiles to the United States. This threat has caused some consternation in Canada because of the importance of the auto sector to our economy. However, the North American automobile industry is so integrated that many parts of each individual car come from all three countries. Imposing a huge tariff on cars coming from Canada might devastate the Canadian industry, but it would also devastate the U.S. automotive industry and would impose huge costs on American consumers. The resistance from U.S. business and consumer interests would be so great that it would likely make Mr. Trump’s tariff threats once again empty.
What does this all mean for Foreign Affairs Minister Chrystia Freeland as she goes back to the negotiating table? She knows that it is in the political interest of Mr. Trump to be able to claim some victory somewhere in the world on trade before the midterm elections. He won’t have it in the near future with China and is unlikely to have one with Europe before November. He could have one with Canada and Mexico if he is prepared to compromise but not if he is completely intransigent. If the NAFTA negotiations fall apart, it will represent a political setback for the President and if they succeed, it gives him an important victory in the run up to the November elections.
Because the U.S. deal with Mexico is a nonstarter without Canada, and because Mr. Trump’s threats to abrogate NAFTA or to impose huge tariffs on the Canadian automotive sector are mere bluster by a bully, Ms. Freeland goes into the next round of negotiations with a very strong hand. She has not been backed into a corner. If anyone is in a corner, it is U.S. Trade Representative Robert Lighthizer, who now has no choice but to negotiate in good faith on issues of importance to Canada; otherwise the U.S.-Mexico deal falls apart and Mr. Trump’s claims of victory disintegrate.
Ms. Freeland need not feel rushed. She can and should take all the time necessary to negotiate what is in Canada’s interests and not succumb to artificial U.S. timetables. The Canadian pundits are wrong. Ms. Freeland and Canada enter the next round of negotiations in a strong bargaining position.