Economy

Donald Trump’s trade deal with Mexico puts pressure on Canada

‘We’ve been painted into a corner, Canada is in a bind’

“If they’d like to negotiate fairly, we’ll do that,” Donald Trump said, commenting on trade relations with Canada.

Tue Aug 28 2018 - 11:14

In the Oval Office on Monday, Donald Trump was flippant as he discussed the prospect of Canada joining the revised Nafta trade agreement that he had sealed with Mexico a few minutes earlier.

“If they’d like to negotiate fairly, we’ll do that,” the US president said, with the cameras rolling. “With Canada, frankly, the easiest thing we can do is to [impose a] tariff [on ]their cars coming in,” he quipped.

Levies

Mr Trump’s posturing – and his warning that new levies could be looming on the Canadian auto industry – seemed designed to apply maximum pressure on Ottawa to accept the terms of the deal agreed with Mexico, or face an escalating trade dispute with the US.

Washington is also trying to force its northern neighbour’s hand in terms of timing. To ensure that outgoing Mexican president Enrique Peña Nieto signs the deal before departing office in November, the US Congress must be formally notified about the Nafta agreement by Friday. Trump officials have vowed to do so with or without the Canadians.

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“We’ve been painted into a corner, Canada is in a bind,” said Peter Mackay, a former conservative Canadian foreign minister working on trade issues for Baker McKenzie, the law firm. If no deal is reached and Canada is left out, “the US will pay a price, but we will pay a bigger price”, Mr Mackay added.

Chrystia Freeland, the Canadian foreign minister, was set to fly to Washington on Tuesday in an attempt to rescue a trilateral deal, cutting short a trip to Europe.

Her presence will mark Canada's return to the Nafta talks after weeks on the sidelines following a vitriolic spat between Mr Trump and Canadian prime minister Justin Trudeau, at the G7 in Québec in June. After the Canadian premier attacked US tariffs on steel and aluminium as "insulting" to Canada, because they were motivated on national security grounds, the US president retorted that Mr Trudeau was "very dishonest and weak".

The freeze in trade relations between Ottawa and Washington gave an opening for the bilateral deal with Mexico to be hatched, even though Canadian officials have insisted they have been kept in the loop on many aspects of the agreement.

‘Constructive’

On Monday afternoon, Mr Trump and Mr Trudeau spoke by telephone, in a conversation described by the Canadian prime minister as “constructive”, signalling that a real thaw could be in store.

Any possible deal with Canada would be likely to hinge on a satisfactory compromise on agriculture, and dairy in particular. The US, along with other nations, has often called on Canada to open up its dairy market to greater competition, but been rebuffed. Canada may also seek some tweaks to provisions on investor dispute settlement and new rules of origin in car production, which could affect its own auto sector.

But if US officials believe they have all the leverage in the talks with Canada, they may be mistaken. Mexico itself would prefer to have a three-way deal, rather than a bilateral agreement, and approval through Congress would probably be much smoother if Canada were involved.

US business groups, a powerful lobbying force in any congressional vote, have signalled that their support could be conditional on Canada being included in the deal, and politicians, particularly in states close to the Canadian border, could be heavily influenced by those voices.

Canada remains the largest export market for the US.

“In order to do no harm to the 14 million US jobs that depend on trade with Canada and Mexico, the agreement must remain trilateral,” the US Chamber of Commerce, the largest business lobby group in the US, said on Monday.

– Copyright The Financial Times Limited 2018

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