Canadians let out a sigh of relief at the end of September when the renegotiation of the North American free-trade agreement ended with the announcement that a new deal had been reached. That moment of grace now appears to have been but a brief interlude.
The Democrats, who, thanks to the midterm elections, will have a strong majority in the House when the new Congress meets on Jan. 3, have already signalled that they will demand changes to the pending United States-Mexico-Canada Agreement (USMCA).
That could delay or even prevent ratification of the deal; there is concern that nothing will be settled until 2020. Canada, which has expended a huge amount of political energy on free trade ever since U.S. President Donald Trump took power in 2017, has now been swung back into uncertainty.
It would be naive to moan that we thought we had a deal. The USMCA, and trade agreements like it, always require ratification in each participating country’s legislature.
But it is nonetheless frustrating to watch this political football, kicked off by the isolationist and protectionist Mr. Trump, being picked up and carried by the Democrats.
There is no way the Democrats, had they won power in 2016, would have made such a big issue of NAFTA. They are not inherently fans of free trade, but two years ago they were not threatening to tear up NAFTA, nor were they the ones calling it the worst trade agreement in history, ever. That hyperbole was Mr. Trump’s alone.
His repeated claim that the United States has a trade deficit with Canada simply wasn’t true. Nor was his assertion that NAFTA was mainly to blame for the loss of manufacturing jobs in the American rust belt: Most of those jobs went to China or were replaced by automation.
In fact, NAFTA’s benefits to the United States are many. They can best be seen in the immediate consequences of the agreement’s sudden demise, were that to come about. Losing duty-free cross-border access would cause significant economic harm to the many American states for whom Canada is their chief customer. The U.S. auto industry would equally suffer were it to be deprived of the trilateral supply chains that allow it to produce cars at a competitive cost.
Perhaps worst of all, in attacking free trade Mr. Trump proved the United States to be an unreliable partner – no more so than when he put tariffs on Canadian steel and aluminum on the risible grounds of national security.
But now, rather than reversing the damage caused by Mr. Trump, the Democrats appear prepared to prolong the pain in the service of their own agenda.
Nancy Pelosi, who is expected to be the next Speaker of the House, says her party wants more concessions from Mexico. Those include better enforcement of Mexico’s obligations to raise wages, to allow Mexican workers to unionize and to protect the environment.
The Democrats are largely motivated by the partisan desire not to give the President a win by ratifying his deal – at least, not without major changes that they can claim as their own. They may well let the deal languish for years.
The end result is that the uncertainty wrought by Mr. Trump and the Republicans could be enhanced by the Democrats. Canada is trapped by the hyper-polarization and contrarian mood of current U.S. politics.
On the plus side, no USMCA means NAFTA is still in effect. The status quo is what Ottawa always sought. It may get it for another few years.
Then again, a frustrated Mr. Trump could at any moment threaten once again to end NAFTA, as a negotiating tactic to pressure the Democrats to vote for the USMCA. Even if he doesn’t do that, he’s unlikely to lift steel and aluminum tariffs, not without getting the win of a signed deal.
That means more uncertainty for Canada’s economy. And there is little Ottawa can do about it. Canadian officials can lobby Congress to recognize the harm to America in leaving the USMCA in limbo, but that’s a call Americans have to make. At home, however, the Trudeau government must move forward with vital economic projects, such as the Trans Mountain pipeline, which can help to close the huge and largely self-inflicted price gap between Canadian and global oil prices.
But until the two parties on Capitol Hill rediscover moderation and co-operation, Canada can expect a long ride, with lots of turbulence.