As the PM heads south to discuss the terms of NAFTA with our neighbours, what does it mean for Canada and the rest of the world?
By: Kaelen Pelaia, Staff Writer
Over the past month, the Trudeau government has begun the lengthy process of re-negotiating the terms and policies of NAFTA (North American Free Trade Agreement) with our co-signatory partner nations, the United States and Mexico. This re-negotiation was primarily suggested by the Trump administration, claiming the need to further protect the interests of U.S. business and economy from foreign influence.
This has been one of the main goals of Trump’s presidency following the 2016 election, along with increasing tariffs on foreign goods entering the US, in order to revitalize the domestic American industrial economy and combat Chinese exports. However, the implications of this goal may mean the end of NAFTA as Canada and Mexico know it. While the three nations signed the agreement in 1993 as equals, the sheer size of the American economic bloc lends the U.S. significant influence in the economic stability of the entire world, beyond just North America.
Several large industries have come forward in favour of maintaining NAFTA, namely the automotive industry, which accounts for 1.2 trillion USD in annual trade between Canada, Mexico, and the US. These companies have manufacturing plants in all three countries, but primarily in Mexico. While many corporations have plans to relocate to the U.S. in the event of a dissolution of NAFTA, the far-reaching effects of such a turnout could have severe consequences on the Canadian and Mexican economies, beyond just the automotive industry.
The U.S. has taken a very adamant position in the proceedings, demanding significant concessions from Mexico and Canada, yet offering little in return, including tariffs on lumber exports (namely from Canada), the aforementioned automotive imports from Mexico, and other incentives to return manufacturing jobs to the United States.
“Trump is targeting NAFTA as one of the major trade treaties the U.S. has as Canada and Mexico are America’s #2 and #3 trading partners,” explains Lakehead University professor Richard Togman. “He hopes that by renegotiating he can restructure the trade agreement to create a more favourable environment to American business such that America ends up exporting more to Canada and Mexico, and possibly importing less.”
Togman also explains that the Canadian government has no easy answer to these proceedings. “There is no objective appropriate response. It is a matter of politics and which sectors will benefit. For example, if Trump demands that dairy be opened in exchange for continuing America’s openness to Canadian automotive exports then this could pit the interests of southern Ontario auto sector companies and employees against the farming sector. Overall, it will be extremely sensitive and difficult for the government to handle these negotiations as they will take years to debate and work through and will inevitably benefit some while others lose.”
However, despite these concerns, Togman remains rather optimistic about the preservation of NAFTA. “I don’t see an annulment of NAFTA or any speedy changes to the treaty in the near future,” Togman says. “There are extremely powerful interests in both Canada and the USA (as well as Mexico) which benefit from the openness of the economies. As well, Trump has limited powers here, as while the President can negotiate a treaty, it is up to the U.S. Senate to ratify it.”
In this case, Trump’s inability to pass legislation may work against him. “Trump would need the support of the Senate to pass any changes to the treaty,” Togman explains. “This will be very difficult as Trump has shown an inability to work productively with Congress, despite both the House of Representatives and the Senate being controlled by Republicans. The Senate is dominated by the more traditional members of the Republican party who generally favour trade and support NAFTA – many of whom did not support Trump during his presidential race in 2016.”
“It will be years in the making if any changes do occur to the treaty,” Togman adds, “and the most significant factor may be the 2018 midterm elections in the US, as if the democrats were able to gain control of the Senate then any moves by Trump to negotiate a new international treaty may be severely frustrated.”
Despite these concerns, Togman believes that this whole process may be less substantial than it appears to be. “Overall, Trump’s goal is to look like he is defending American businesses and jobs,” he says. “Taking a tough negotiating stance internationally appeals to his base of supporters who support his ‘America First’ campaign. Appearing to be fighting for the restoration of American jobs may be more important to Trump than actually understanding economics, the benefits of trade, or the realities of the limits of his powers as President.”
These negotiations are an important stepping stone in North American politics, and could have profound consequences on Canada and our closest partners in trade.