US-Mexico Trade Deal – What It Means for Canada and NAFTA
The markets have been closing in on record territory. The latest good news is an announcement of a revised US-Mexico Trade deal – effectively a revision of the North American Free Trade Agreement (NAFTA). In addition to updating some of the terms of the agreement to reflect the new digital economy, there are some significant concessions from Mexico from the automotive industry, shifting more production into the United States.
Canada has been consciously absent from these negotiations and this is by design as Trump continues with his tough rhetoric. In fact, he made a point of saying that the new deal was replacing NAFTA, saying “they used to call it NAFTA,” Later he invited people to call it the “United States-Mexico Trade Agreement,” adding that the term NAFTA — which he has called the “worst” trade deal in history — had “a bad connotation” for the United States.
So, what does that mean for Canadians? Despite tough talk from Canadian politicians and a patriotic “buy Canada” response from ordinary Canadians we are predicting that Canada will make concessions to the United States to keep NAFTA intact, even if almost everyone thinks the current agreement is fair to both parties. Here’s why.
In the past the United States had a mandate to advance global trade and had a sincere desire to improve the global economy and the lives of all global citizens. Therefore, agreements were balanced and fair, even if the United States, because of the size of its economy, could create unbalanced agreements in its favor if it wanted – not unlike what Great Britain did with its colonial holdings in the 19thcentury. Much of that desire to be a good global team player has disappeared in the Trump administration and his America-first policy coupled with his personal skills at leverage and deal making has refocused American goals on creating the best possible economic outcome for the United States, regardless of the cost to other countries or to America’s reputation as a country that was working toward global equity.
So, the United States is going to use its economic leverage to put pressure on Canada until Canadian politicians crack and we are forced to offer some economic concessions. The United States can do just fine without Canada but the Canadian economy would collapse if we got into a full scale trade war with the United States – and everyone knows it. Look for several weeks of tough talk from Canadian politicians followed by an attempt to make the smallest concessions possible. But in the end, Trump will get his way and Canada will suffer – hopefully, our negotiators and politicians will be skilled, and the pain will be manageable. NAFTA will survive but it will change. Our milk and cheese will likely be cheaper in the near future but it will be tough days ahead for many family farms.