Canada should prepare to call Trump’s bluff on NAFTA

Everyone who’s ever done business with Donald Trump knows his favourite tactic: don’t negotiate; intimidate. Well, he’s at it again, threatening to pull the plug on the North American Free Trade Agreement (NAFTA) because Canada and Mexico are being “very difficult.”

This broadside is the equivalent of rolling a live grenade into the room when trade talks have only just begun.

Canadian trade negotiator Chrystia Freeland has tried to remain calm, reminding the public that “heated rhetoric” is common in these situations. However, a prudent negotiator would also begin thinking the unthinkable – calling Trump’s bluff and abandoning NAFTA entirely.

Although it would significantly impact trade across the U.S.-Canadian border, there are clear advantages to Canada in leaving the agreement. In the first place, abandoning NAFTA would end the false notion that Canada gained special privileges in agreeing to a trade deal with the United States.

Prior to NAFTA the U.S. was constantly changing the rules of cross-border trade to benefit domestic producers. A significant Canadian objective in the original Canada-U.S. trade deal (and subsequently NAFTA) was to obtain secure and stable access to the U.S. market.

Regrettably, nothing has changed; the U.S. continues to unilaterally alter the rules whenever it suits its commercial interests.

For example, just last April the United States Department of Commerce ignored the NAFTA agreement (and the World Trade Organization) when it unilaterally imposed a 24% countervailing duty on imports of Canadian softwood lumber. U.S. border agents were told to begin collecting duties immediately, and specific Canadian producers were warned that these charges would be retroactive (to an as-yet-unspecified date).

Unfortunately, this kind of action is common practice. Since the signing of NAFTA, the U.S. has routinely imposed anti-dumping and countervailing duties against Canadian agricultural products, including cattle and live swine.

U.S. authorities have also imposed non-tariff restrictions on trade, including “safeguards” against Canadian beef and lamb. Importantly, individual U.S. states often take direct action, imposing physical blockades of trucks at the border carrying Canadian goods. In past years, they seemed particularly obsessed with Canadian imports of durum wheat and barley sold through the (now terminated) Canadian Wheat Board.

It seems “free” trade is simply a facade, for behind it lies a host of U.S. domestic trade legislation including “Section 301” actions, whereby the U.S. government is authorized to take wide-ranging action against “unreasonable” or “discriminatory” foreign government practices that interfere with U.S. business interests.

Regrettably, agriculture is not the sole area where free trade has delivered only marginal benefits for Canadians. Consider energy.

In the original Canada-U.S. free-trade agreement, the United States negotiated hard for unhindered access for investment in Canada’s resources sector. This access must – they insisted – be “without Canadian government surveillance or restriction.”

The consequence of NAFTA on energy has been to essentially jettison Canadian sovereignty and frustrate the idea of national energy security.

Is it any wonder that, rather than build upgrading and refining facilities in Canada, we transport our energy products (including raw bitumen) thousands of miles from Alberta to the Gulf Coast? Is it surprising that even Canada’s conventional crude is uniformly pipelined to the U.S. where it is sold at a significant discount to world prices?

No, we should not be surprised. NAFTA is designed to serve the interests of the United States and its desire for cheap Canadian energy.

Jettisoning NAFTA would not be the end of U.S.-Canada trade. We are each other’s No. 1 trading partner. The rules would change, of course, but cross-border trade would simply revert to international standards.

It must be remembered that, before NAFTA, 80% of Canadian exports to the U.S. entered tariff-free, and those items that did face import duties (mostly clothing, textiles, footwear and some petrochemicals) had only to pay a tariff of 5% to 10%.

In a perfect world, populated with reasonable people, NAFTA and other free trade deals would be win-win arrangements that respected the rights of individual nations to govern themselves. But the world is not populated with noble, thoughtful individuals; Donald Trump governs it.

We Canadians have known for decades that we must build alternative trading partnerships first at home (naturally) and then in international markets. Abandoning NAFTA would force us to do it. The bottom line is we must stand up and defend our rights, or after 150 years as a nation we’ll simply have traded one colonial master for another. 

Robert McGarvey is chief strategist for Troy Media Digital Solutions Ltd., an economic historian and former managing director of Merlin Consulting, a London, U.K.-based consulting firm. His most recent book is Futuromics: A Guide to Thriving in Capitalism’s Third Wave.