Meredith Lilly is associate professor and Simon Reisman chair in International Affairs at Carleton University.
The seventh round of NAFTA negotiations is under way in Mexico, only this time to much less fanfare. That's a good thing, because it's time for a clear-headed rethink of where the negotiations are going and how this fits into Donald Trump's plans. It's tempting for us "smooth operators" in Canada to fixate on the U.S. President's next move, always full of drama, excitement and suspense. But this is a mistake. Negotiators who focus on transactional negotiating positions lose. Instead, we need to focus on Mr. Trump's long-term interests.
This is why the constant, panicked media speculation regarding whether Mr. Trump will tear up the NAFTA has been both misplaced and unhelpful. Misplaced because it is not in Mr. Trump's long-term interest to withdraw from NAFTA: Over all, the United States benefits from the agreement and Mr. Trump has come to understand this. With the help of Team Canada fanning out across the United States to promote our bilateral ties, American business and Republican congressional leaders appear to have convinced the President that a withdrawal would reduce investment in the United States and kill jobs. So Mr. Trump adapted his story and stopped talking about tearing up the deal in January.
If only Canada could do the same. Instead, Canadian media mostly continue to speculate on a potential withdrawal. This is deeply unhelpful because keeping that fire burning on the front pages only fuels uncertainty about Canada's economic climate. As Bank of Canada Governor Stephen Poloz has pointed out, business uncertainty is high in Canada and investment is in the deep freeze as everyone paces around awaiting the outcome of NAFTA talks. This serves to make the United States the safer bet for investment relative to Canada as investors seek stability and predictability.
All along, Mr. Trump has wanted to renegotiate NAFTA in order to spur investment in the United Staets and bring back American jobs. In this respect, the NAFTA talks themselves represent a negotiating position for this President – not an end goal. Unlike every other leader who has ever set out to strike a trade deal, this President doesn't necessarily want one. For him, success will be achieved if he reshores investment in the United States and creates jobs. Although he originally favoured a rapid negotiation that would potentially end in NAFTA's demise, dragging out a long negotiation may now serve his interests better.
Of course, NAFTA alone won't get him the success he seeks. At home, the President has rolled out the most comprehensive U.S. corporate-tax package in a generation. These reforms have dramatically changed the game for Canada by eliminating the corporate-tax advantage that helped make Canada a more attractive place to invest and do business. Yet, in this week's budget, Finance Minister Bill Morneau stubbornly refused to take any steps that could address the competitiveness challenge Canada faces as a result. Staying the course on Canadian fiscal plans that were developed before Mr. Trump became President is beyond foolhardy: It's reckless. Our economy is one-tenth the size of the United States and we depend on it for 75 per cent of our exports. It is imperative that we monitor U.S. changes that threaten our competitiveness and adjust our own sovereign, domestic economic policies accordingly.
More problematic have been Mr. Trump's moves to pursue trade actions and remedies to rig the game in his favour. So far, Canada has been his No. 1 target. Last year, it was softwood lumber and Bombardier. Now, it is the threat of 25-per-cent tariffs on U.S. steel imports that the President has said he is imposing on "national security" grounds. Canada may not be exempt this time. We are the top exporter of steel to the United States. Should tariffs be imposed, the negative consequences to our economy will be swift. Even if Mr. Trump doesn't follow through, the threat alone continues to destabilize the Canadian economy to his advantage.
Canada does not pose a national-security threat to the United States, and of course any move to impose tariffs on these grounds would be outrageous and unfair. A less-polite Canadian might even accuse the U.S. administration of cheating on the rules. But our blind adherence to the safety of a rules-based order increasingly reveals our powerlessness in the face of a rule breaker such as Mr. Trump. Each time this happens, Mr. Trudeau and his team seem wholly unprepared to respond. By the time Foreign Minister Chrystia Freeland asks the referee at the WTO to intervene, Mr. Trump will have declared victory and the game will be over.
It's time for a new playbook – one that demonstrates we've learned from Mr. Trump's transactional moves and allows us to achieve our own long-term interests of creating jobs and investment in Canada. Lest I be misunderstood, I'm not calling for Canada to escalate a trade war with Mr. Trump: we can't win. Instead, Mr. Trudeau and Mr. Morneau should focus on urgent, temporary measures to assist Canadian businesses in weathering this storm until calmer winds prevail. The Trudeau government is fond of telling us they are hoping for the best but preparing for the worst on NAFTA. Well, the worst may not be a NAFTA withdrawal at all. Instead, we may already be deep in it: a long, drawn out negotiation that destabilizes our economy and allows Donald Trump to win at what he set out to do all along.