On Monday, after the new United States-Mexico-Canada Agreement was announced, President Donald Trump took to Twitter to boast about what he called "a wonderful new Trade Deal with Canada, to be added into the deal already reached with Mexico.”
Among the benefits of USMCA that he touted with typical overkill (it’s a "great deal” that "greatly opens markets,” the President wrote) was one that didn’t receive much attention at the time, but which has taken on more relevance as details of the agreement have come to be better understood.
The deal, Mr. Trump said, "will bring all three Great Nations together in competition with the rest of the world.”
What did he mean by that?
Canadian governments never saw NAFTA as a deal that bound the three continental partners together against "the rest of the world.” The original free-trade agreement between Canada and the United States in 1988 reflected the two countries' mutual economic dependence and long friendship. The addition of Mexico in 1994 broadened the scope of the deal in a logical way, and protected Canada against the risk of a bilateral agreement between the United States and Mexico.
But at no point was NAFTA thought of as a continental us-against-the-world pact. Canada was free to pursue deals with other countries, as it has done and is still doing.
So why would Mr. Trump claim that USMCA unites Canada, the United States and Mexico in some kind of "competition with the rest of the world”?
Most likely because of two parts of the deal that do, in fact, bind Canada and Mexico to his worldview and appear to make allies of them in his trade war with China.
One part, Chapter 33, titled "Macroeconomic Policies and Exchange Rate Matters,” prohibits the three countries from manipulating the value of their currencies, and obliges them to inform each other on a regular basis of their interventions in currency markets, among other transparency measures.
This comes out of the blue, given that allegations of currency manipulation have not been a pressing issue during the lifetime of NAFTA. But the provision is a tight fit with Mr. Trump’s claim that China has been deliberately manipulating the yuan downwards in order to increase its exports. Thanks to Chapter 33, he can justifiably say that his concern is shared by the rest of North America.
The other part, article 10 of Chapter 32, is an even more direct reference to Mr. Trump’s China crusade. It gives each partner the right to pull out of USMCA if either of the other two signs a free-trade agreement with a "non-market country” – everyone knows this refers to China – against their wishes.
There is no other way to interpret this than as an agreement by Mexico and Canada not to sign a free-trade deal with China in the near future.
Why? Because it is guaranteed that, if at some point down the road the United States signs an FTA with China, neither Canada nor Mexico will for one instant threaten to pull out of USMCA. They simply don’t have the leverage.
But if Canada or Mexico move to open their ports to China, and Mr. Trump hasn’t resolved his dispute with Beijing, he has the power – not to mention the temperament – to sabotage them via the provisions of USMCA.
That is certainly how China and the United States see it. Chinese embassy officials in Ottawa said this week that the provision “blatantly interferes with other countries' sovereignty,” while White House economic advisor Larry Kudlow told reporters the deal “sends a signal to China that we are acting as one."
The only people saying otherwise are Canadian officials, the Prime Minister included. Canada is still free to pursue trade deals with any country it wishes, they say, and in the long run that will likely be true.
For the moment, though, Canada’s hands would seem to be tied.
We said the new USMCA is a good deal for this country, especially given the circumstances under which it was negotiated. We still believe that.
But it is apparent that it came at a cost, perhaps temporary, to our sovereignty and independence. Prime Minister Justin Trudeau now needs to reassert that sovereignty and demonstrate to Canadians that Mr. Trump does not have a say in how we deal with China.
For the moment, that’s not clear.