Sometimes in a negotiation, you have to work hard to stay in the same place. Sometimes, going nowhere is progress. Leaving the table with nothing more than the status quo? Sometimes, that’s a victory.
That sums up what the Trudeau government accomplished, and what it prevented, during more than two years of heated trade negotiations with the United States. Thanks to the conclusion last November of the United States-Mexico-Canada Agreement, and a May 17 deal that finally lifts U.S. tariffs on Canadian aluminum and steel, Canada’s most important trade relationship has come full circle.
After two years of conflict, not everything is the same – but not much has changed. And that is a win for Prime Minister Justin Trudeau’s government, and for Canada.
This country faced the prospect of a sustained economic assault from the moment U.S. President Donald Trump arrived in office.
After forcing a reopening of the North American free-trade agreement, Mr. Trump imposed the tariffs – 25 per cent on steel and 10 per cent on aluminum – on Canada and Mexico last June, as talks stalled. Mr. Trump, who had called the NAFTA the “worst trade deal in the world,” wanted to bludgeon his negotiating partners with his favourite weapon.
The most galling detail was the invented basis for the tariffs. Mr. Trump invoked national security, as though Canada was a threat, rather than America’s best partner and friend. He used Section 232 of the U.S. Trade Expansion Act of 1962, which allows the U.S. President to consider the “national security of imports.” And so Canadian and Mexican steel and aluminum were deemed a risk and became more expensive for U.S. businesses to import.
The only place this charade was a win was in the mind of Mr. Trump.
Canada successfully finished the renegotiation of NAFTA. It was touch-and-go at times, with Mexico City and Washington at one point cutting Ottawa out of the loop, but the deal ultimately reached wasn’t far off the NAFTA status quo. However, the tariffs remained. The new trade deal, the USMCA, was signed by the three countries late in 2018.
It has since been in limbo, with NAFTA still in place because the USMCA remains unratified by each of the three partners. That situation evolved into an advantage for Canada and Mexico. Neither country was interested in ratifying the new trade deal while the tariffs were still in place. And in the United States, ratification stalled, with Democrats not eager to give Mr. Trump a trade win, and free-trade Republicans unhappy about the maintenance of trade-blocking tariffs. GOP Senator Chuck Grassley in late April penned a piece in The Wall Street Journal under the headline, “Trump’s Tariffs End or His Trade Deal Dies.”
The White House wanted to replace the tariffs with quotas to cap steel and aluminum imports; Canada and Mexico refused. Meanwhile, Mr. Trump had turned negotiations with China into another front in his trade wars. Fighting with the neighbours, which didn’t make sense to begin with, started to look outright foolish.
It was then that the White House made concessions. A deal was done to end the U.S. tariffs and Ottawa’s retaliatory duties – basically mutual disarmament. Those were not Washington’s original terms.
Free trade with the United States remains essential for Canada, even as this country diversifies its markets. Three-quarters of Canada’s merchandise exports go to our southern neighbour, and over the last five years exports to the United States have risen by $33.7-billion. That’s worth more than the value of Canada’s annual exports to China.
The next order of business is the USMCA. Ottawa is set to soon introduce legislation to ratify it. Time is short, as the House of Commons and the Senate rise in late June ahead of the fall election. U.S. vice-president Mike Pence is in Ottawa on May 30 to press the urgency.
Mr. Pence and his boss have a more complicated problem in Washington, where Congress may not ratify USMCA until 2020, if ever. For Canada, that is no great concern. If Congress ratifies the USMCA, fine. But if ratification is subsumed in an extended U.S. political wrestling match ahead of next year’s presidential election, then that’s okay too.
Because if Congress fails to approve USMCA, then NAFTA remains in force. And keeping NAFTA, or something close to it, was always Canada’s goal.