Canada braces for brass-knuckles birthday present from U.S. trade authorities

This arrival of July 1 this year feels more like something to get through than to savour, so squelched are the celebrations by both the pandemic and the social tensions of the times.

It doesn’t help that there is the new free-trade agreement for North America, the abiding document to govern about $1.5 trillion in commerce among Canada, the United States and Mexico.

It kicks in on Canada Day, and kick is a pretty reasonable image, because America under Donald Trump has done little or nothing to soothe the relationship of the world’s two most venerable trading partners. We are one-sixteenth the economic size of our neighbour, so when there is a bully on the beach, we get sand in our face any time we share the space.

The new NAFTA, called the USMCA after the initials of the participating countries, even puts Canada last in the acronym. (We tried to call is CUSMA, to no avail.) The back-of-the-pack feeling is for good reason: the deal was a charade by Trump to appease few but himself, contaminated by repeated threats that ignored the pragmatic economic interdependence of our countries, and concluded as quickly as Canada could without further inciting the bear.

We gauged the result not on the basis of what we gained, but on how little we lost and how it could have been worse. Such is the context of our partnership.

Studies and projections on the deal are hardly encouraging. Even before the pandemic, the agreement was going to take about four-tenths of a point from our gross domestic product; in any America First movement in the coming months (years, if Trump is re-elected), that would feel like a win.

Any projected Canadian gains from USMCA are tied to a shaky theory that a reduction in some uncertainties about policy on data, intellectual property and e-commerce will provoke American investment to the north. The expert analysis on this is that the projection is a stretch, even an overreach, in its effort to quantify the anticipated behaviour of investment.

Moreover, most of the early analysis of the deal did not compare it to what it replaced, but to the absence of any deal. Which might be politically fair, in that Trump was blustering about tearing up NAFTA and having nothing if he couldn’t get the negotiated settlement he sought. But it’s not the true baseline to compare, given the history of comprehensive trade pacts dating back more than three decades.

What is also evident is that the second version of the Trans-Pacific Partnership, of which Canada but not America is a signatory, conferred some guidance on negotiations – even some modest gains for the United States. Trump would have been wise to sign on, but given he was never going to secure control at the table, it wouldn’t have been in character. But it is an object lesson for Canada to diversify its trading partners and deals, and that is something we have done in recent times.

Now, an expectation arising from arduous negotiating and ratifying might very well be that disharmony could be shelved for some time to create an environment of agreed-upon friendship.

Not so fast. As Robert Lighthizer, America’s trade representative, told Congress in recent days, the main reason for the deal to take effect is so America can start “enforcing” it. From a Canadian perspective, I suspect his definition of enforcing is a little darker than ours, a little more Robert DeNiro than Tom Hanks.

One of the leverage points America possessed as negotiations ensued was a tariff on our aluminum exports to its market (steel was also in the crosshairs). It agreed to exempt Canada and Mexico from the tariffs but to keep a close eye on cross-border commerce on the commodities and find ways to resolve the differences if they arose.

Well, the close eye has become a stink eye. Any hour now, America will give Canada the gift that keeps on giving, a birthday tariff on aluminum, even if the observers of the industry say we are hardly dumping the metal into the market by historic standards. The fresh deal will be so yesterday.

Next up, Canada will act the way almost any child acts when someone grabs the marbles; it will ensnare the next available object in retaliation. And so we will give the president another reason to tweet and our prime minister another 21 seconds to consider his answer to the question of what on earth we can do with this administration.

All is fair in love and war and an election year, but really, we have better issues to solve with ourselves.

Kirk LaPointe is publisher and editor-in-chief of Business in Vancouver and vice-president, editorial, of Glacier Media.