NAFTA re-negotiations are not going well. There is a very real chance that United States President Donald Trump could end the NAFTA agreement. The Trudeau government must deal with the realities of the situation as it currently exists rather than some idealized view of a perfect, progressive world. In a leaked memo to clients of his consulting firm former Prime Minister Stephen Harper said:
“I fear that the NAFTA re-negotiation is going very badly. I also believe that President (Donald) Trump’s threat to terminate NAFTA is not a bluff … I believe this threat is real. Therefore, Canada’s government needs to get its head around this reality: it does not matter whether current American proposals are worse than what we have now. What matters in evaluating them is whether it is worth having a trade agreement with the Americans or not.”
Trump really could terminate NAFTA
Harper was dead-on in the quoted analysis. The most important part of that analysis is that Donald Trump really could terminate NAFTA. Trump would rather terminate NAFTA than sign a bad deal for easily understood electoral reasons.
Trump was elected on a wave of popular resentment in the rustbelt. Bad trade deals was a tangible target for that anger. That is why Trump announced his intentions to pull the United States out of the Trans-Pacific Partnership before he was inaugurated.
The United States demands in NAFTA re-negotiations reflect Trump’s electoral success and future plans. Trump won Michigan in 2016 and was the first Republican to do so in 28 years. The United States is pushing for 85 percent North American content, and 50 percent ‘made in America’ content, on vehicles as part of the new NAFTA. This demand is vital to Trump holding Michigan. Trump would terminate NAFTA if his only option is to sign a deal that is seen as a betrayal of the auto industry.
The United States demands on ending supply management reflect Trump’s success in Wisconsin. Trump was the first Republican nominee to win Wisconsin in 28 years. The state’s nickname as “America’s Dairyland” illustrates how important the dairy industry is to Wisconsinites. The supply management system levies tariffs of 246% on cheese coming into Canada and levies of over 300% on butter coming into Canada. Wisconsin voters would punish Trump if he signed a deal that was seen as a betrayal to the dairy industry.
No deal is the worst deal for Canada
The Canadian demands to address social issues in NAFTA illustrate how much Trudeau is out of his depth. A large element in Trump’s win was a rejection of the identity politics of progressive politicians in the United States. The Canadian focus should be about holding on to as much as possible.
The end of NAFTA would hurt both Canada and the United States. However, the impact on the Canadian economy would be far more serious than the impact on the American economy. At this point in the negotiation, the Canadian government should be focused on salvaging some sort of deal.
Canadian negotiators need to be realistic about the shape of a potential future deal. If a deal is to be held it won’t have a substantive social charter. The dispute mechanism has to change to prevent Mexico and Canada from ganging up on the United States. The Americans need to get wins on the auto industry and supply management. Hopefully, the Canadian negotiators recognize reality and are able to sign some sort of deal.