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Trump’s rejection of TPP could be a gift to Canada

Globe and Mail reporter David Parkinson.

As Donald Trump fine-tunes his isolationist trade agenda, maybe Canadians should be thanking him. He may be about to grant Canada a four-year window to build crucial overseas market share while the United States cedes ground on the international playing field.

In a video released Monday, the U.S. president-elect indicated that on "Day One" of his administration he will pull the United States out of the Trans-Pacific Partnership, a trade deal concluded earlier this year among 12 Pacific Rim countries (including Canada and the U.S.) but not yet ratified by U.S. Congress.

"Instead, we will negotiate fair, bilateral trade deals that bring jobs and industry back onto American shores," he said in briefly outlining his trade priorities. Mr. Trump's video statement is no great surprise – he was vociferously, hyperbolically critical of U.S. trade agreements during the long presidential campaign, and pledged in his campaign platform literature to scrap the TPP.

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Ian McGugan: Canada to be virtually untouched by Trump's pull from the TPP

But this key post-election affirmation of the TPP as a first-day priority serves to ring in the new U.S. protectionist era; Mr. Trump stressed that his entire presidential agenda "will be based on a simple core principle: putting America first."

But as Mr. Trump looks inward, it strengthens the argument for Canadian policy to look outward. A major competitor in international markets is rejecting preferential access to those markets, starting with the TPP – and that presents an opportunity for Canada.

Admittedly, the TPP becomes instantly less compelling without the huge U.S. market as a part of it – so much so that the pact may crumble as a result, at least in its current form. (Japan, the second-biggest partner in the TPP, has already suggested that there's little point to the alliance without the United States.) Nevertheless, there remain 11 key Asia-Pacific economies in agreement on providing each other preferential market access.

China is already making noises about joining them, effectively assuming the vacated U.S. role as the pivotal global economic power at the core of the partnership. (If Mr. Trump's trade plan includes getting tough on China, he may be about to shoot himself in the foot on his first day on the job.) Any sort of a trade alliance with a group of Pacific Rim countries that includes Canada, even a smaller, watered-down one, would give Canada a leg up in some key growth markets at a time when U.S. companies will not enjoy the same advantage. We can easily imagine a Canadian advantage extending to other key export markets, too, as Trump-style trade policy turns inward. Canada has successfully nailed down CETA, its trade deal with the European Union; the United States and the EU are pretty much dead in the water on negotiating their own trade alliance, the Transatlantic Trade and Investment Partnership, and Mr. Trump isn't believed to be a fan of that proposed deal, either. He's threatening stiff tariffs against China, whose share of Canadian exports has more than doubled in the past decade.

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And then there are Mr. Trump's trade threats against Mexico, one of its two partners (along with Canada) in the North American free-trade agreement, the sweeping continental alliance that has deeply integrated the North American economy. Conspicuously, Mr. Trump's video made no mention of NAFTA, a deal the president-elect demonized throughout the election campaign, threatening to renegotiate or even abandon the pact. Perhaps Mr. Trump has talked with enough U.S. business leaders in his first two weeks since his election win to recognize that tearing up NAFTA would do serious and perhaps irreparable harm to American producers and workers whose livelihoods are tied to this interdependent market.

Nevertheless, if Mr. Trump follows through on his election threats to impose effectively punitive tariffs on Mexico – the overwhelming focus of his NAFTA complaints, Canada is an afterthought for him – he may launch a trade war with his southern neighbour that, ultimately, leaves Canada with better trade relationships with both of its NAFTA partners, and even more favourable tariff rates, than they have with each other – an unquestioned advantage in an integrated market.

And if Mr. Trump is truly dedicated to a bilateral approach to trade, the existing Canada-U.S. Free Trade Agreement (which was essentially supplanted by NAFTA, but remains in place) is the gold standard for U.S. bilateral trade pacts. Nowhere does the United States have a better-managed, more synchronized or more important trade partnership than with Canada. A focus by Mr. Trump on bilateral trade, at the expense of broader international agreements, would logically lead down a path to stronger Canada-U.S. trade ties, not weaker ones. And the more a Trump administration turns its back on other key trading partners, such as China and Mexico, the more important its free-trade relationship with Canada will become.

So, Mr. Trump may unwittingly be proposing to offer Canada the best of both worlds: Preferential access to the U.S. market as the Trump administration embarks on trade wars with other key trading partners, and access to important foreign markets that is preferential to what its U.S. competitors will have. His protectionist turn offers Canada a rare opportunity to step up its own efforts to secure access to markets that its American competition looks determined to neglect.

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