Canadian Prime Minister Justin Trudeau is scheduled to meet with United States President Donald Trump today in Washington, DC. The topic of the meeting is the ongoing NAFTA re-negotiations. Three key areas of contention are softwood lumber, supply management, and Bombardier.
Donald Trump was elected thanks in large part to rustbelt anger with the perception that America is getting the raw end of the deal in international trade deals. Progressive icon Michael Moore presciently stated that Trump would campaign hard in the rustbelt states of Michigan, Ohio, Pennsylvania, and Wisconsin. Trump swept the four states representing 64 electoral college votes. This was a dramatic turn of events as Barack Obama took the four states in both 2008 and 2012.
Changes to the supply management system are especially important for Trump to maintain his winning coalition. Wisconsin has the nickname of America’s Dairyland as one of the country’s largest dairy producers. Trump wants to win Wisconsin again in 2020 and obtaining greater access to the Canadian dairy market for American farmers would be a huge win piece in achieving that goal.
Changes to supply management should be relatively easy to agree to for the Canadian side. Canada already agreed to open the industries protected by the supply management scheme under the defunct Trans-Pacific Partnership (TPP). Agreeing to the same amount of market access under a re-negotiated NAFTA should be accepted by the impacted Canadian producers as long as the terms of compensation are the same as they were offered when the issue arose with the TPP.
The multiple subsidies and tax advantages that are given to Bombardier have led to the United States levying an 80% duty on the company’s C-series planes. Trudeau may be able to leverage a planned purchase of fighter jets from Boeing in the negotiations. The most likely outcome on the aerospace file is a reduction in the duty applied on the Bombardier planes in question.
Softwood lumber has long been a sore point in Canada-U.S. trade relations and it first arose as a problem 35 years ago. The heart of the problem is stumpage fees. Stumpage fees are the amount that provinces charge companies to harvest the lumber in their jurisdiction. In the United States, the price for stumpage is set by the free market. In Canada, the provinces set the price for stumpage fees. The United States has long contended that Canadian stumpage fees are artificially low and are a de facto subsidy for the Canadian lumber industry.
There is room for Justin Trudeau’s Liberals to craft a win on softwood lumber. If Canada opens the stumpage fees for some areas to market forces it will presumably provide increased revenue as the market-based stumpage fees will be higher than the existing fees. The incremental revenues can be used to pay for a transitional fund which will help impacted workers re-train.
Trudeau’s meeting with Trump is crucially important for successful re-negotiations of NAFTA. Trump is known to be much more personable in the one-on-one meeting than his reality show persona. Trump and Trudeau have a positive working relationship. Hopefully, Trudeau uses the personal meeting to move Trump in the direction that helps Canada get the best possible deal in a re-negotiated NAFTA.
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