It’s not a good sign when countries can’t even agree on what to call a trade deal.
The Americans say it’s the U.S.-Mexico-Canada Agreement, or USMCA. The official Canadian title is the Canada-United States-Mexico Agreement, or CUSMA. Mexico is apparently just thankful to have a deal by any name. Most everyone else just calls it NAFTA 2.0 or the new NAFTA, because an updated North American free trade agreement is essentially what it is.
Nearly four months after the three countries completed negotiations, the deal-with-many-names is facing an increasingly uncertain future.
Ratification was supposed to be at the top of the agenda for the incoming U.S. Congress. But the partial U.S. government shutdown, feuding between Republicans and Democrats and a lack of direction from the White House has left the deal in limbo, with no clear timeline for passage.
The danger now is that a vote in Congress may be pushed back so far that it runs smack into the 2020 election season. That could make the deal a political football, and much trickier to get past Democrats, who now control the House of Representatives.
Problems are piling up fast. Democrats are in no mood to give U.S. President Donald Trump a big trade win and some are seeking significant changes to the agreement, including tougher enforcement of labour provisions. It’s not clear that Canada and Mexico would agree to any changes.
The shutdown has also stopped the U.S. International Trade Commission from pursuing its assessment of the economic affects of the agreement, as required by U.S. trade law. And with most U.S. trade officials furloughed, implementing legislation hasn’t been drafted yet.
Meanwhile, Mexico missed a Jan. 1 deadline to implement labour reforms, as required by the agreement.
Ottawa could drag its feet on implementing the deal in Canada until Mr. Trump lifts tariffs on Canadian steel and aluminum.
Mr. Trump has already threatened to issue a six-month notice of withdrawal from the original NAFTA to pressure Democrats to pass the deal.
Things could get bumpy in the short-term. If Mr. Trump triggers a withdrawal, it would create a “Brexit-like cliff-edge” of uncertainty for companies and investors throughout much of the year, with a one-in-10 chance that both NAFTA and its replacement collapse, according to a recent report by investment bank JPMorgan. And it says all the noise will put downward pressure on the Canadian dollar and widen the spread between Canadian interest rates and typically lower U.S. rates.
JPMorgan says there is now a 60-per-cent chance that Mr. Trump will seek to exit NAFTA. “We now believe [USMCA] ratification will prove a lot bumpier than most market participants realize,” the bank says.
Royal Bank of Canada economist Nathan Janzen agrees passage of the new NAFTA has become much more complicated because of the darker mood in Washington. But in a research note, he says failure of the new deal as well as the demise of the old one is unlikely.
“Political gridlock that made it more difficult for the Americans to pass the new deal would also make it more difficult to repeal the legislation that implemented NAFTA,” Mr. Janzen argues. “So some form of free trade deal is still likely to remain in place.”
Mr. Trump is undeterred. Earlier this month he said the deal was in “very good shape” and that he hoped Democrats would okay it quickly. “They’ll approve this one,” he insisted.
Many key Democrats don’t see it that way.
“I think the timeline is more unclear right now than ever, just in terms of how [the agreement] would move forward, let alone how people feel about the content,” Washington Democrat Suzan DelBene, a member of the powerful House ways and means committee, told Inside U.S. Trade.
That doesn’t bode well for the Canadian economy. This was supposed to be the year the clouds of trade uncertainty caused by Mr. Trump’s election would finally lift. The Bank of Canada is counting on ratification of the deal to power business investment and exports in the coming months, particularly as other sectors sputter, such as housing and consumer spending.
Unfortunately, Canada now appears headed for a third consecutive year of doubt about its economic place in North America.
And there is a name for that: unwelcome.