The calamitous end to the latest round of NAFTA talks in Washington forces us to confront the likelihood that the North American common market will collapse. Canada might craft a new, bilateral agreement with the United States. But the situation is very grim.
As John Manley, head of the Business Council of Canada, put it Tuesday afternoon: "After a divorce, sometimes partners refind each other," but "it's pretty unusual. People go away."
Grimly, he added: "If we ever thought we are in this together, we're losing that illusion."
For many decades, Canada has been a friend and ally of the United States. We have had serious disagreements – over Vietnam, over Iraq and more – but seldom has an American official spoken publicly about Canada, and Mexico as well, with the hostility that United States Trade Representative Robert Lighthizer displayed Tuesday.
"I am surprised and disappointed by the resistance to change from our negotiating partners," he said. Trade deficits and the outflow of jobs and capital must end, he declared. (Even though Canada has no meaningful trade deficit with the United States.) But "we have seen no indication that our partners are willing to make any changes."
And on foreign direct investment: "It is unreasonable to expect that the United States will continue to encourage and guarantee U.S companies to invest in Mexico and Canada primarily for export to the United States." The free flow of investment is at the heart of any open marketplace. If the Americans don't back down – and nothing suggests they will – these talks must fail.
It is true that, even if President Donald Trump is determined to end the North American free-trade agreement, that agreement won't necessarily end. Many of its provisions have been enacted in Congress, and may remain in force unless and until Congress repeals them. And, as Jeff Rubin, a senior fellow at the Centre for International Governance Innovation in Waterloo, expects, "there is a growing possibility that the U.S. will walk away from the agreement and seek separate bilateral trade deals with Canada and Mexico."
But if you own a business that involves buying from and selling into the American market, why would you invest right now? Or next year? How secure are the supply chains? What are the chances of a recession if NAFTA ends? How secure is your job if there is a recession?
Beyond that, for those of us who have admired American dynamism and creativity, comes the growing realization that divisions between economic winners and losers are now so pronounced, ideological factions so extreme, racial tensions so intense, inter-regional hostility so bitter that goodwill has been lost, including goodwill toward allies.
Foreign Affairs Minister Chrystia Freeland put as good a gloss on things as she could muster, Tuesday, when talking with reporters. The fact that all sides had agreed to extend the talks into March was a sign of mutual commitment to success, she maintained.
But "I don't want to sugarcoat this," she added, "… there are significant differences." And extending the deadline will only bring new difficulties, as the talks bump up against campaigning for the July presidential election in Mexico and the American midterms in November.
The unravelling of NAFTA is not simply the product of Donald Trump's tempestuous populism. Those who have championed a world of open borders must accept that this world is being torn apart.
"What we've taken for granted – that further globalization, and its handmaiden, free-trade agreements, are both inevitable and desirable – is being challenged," Mr. Rubin believes. By ignoring the inequities between winners and losers in a globalized marketplace, globalists may have doomed their grand experiment.
With their seemingly unmeetable demands – an agreement that ends in five years, tough new rules of origin, an end to dispute-settlement mechanisms and the rest – the Trump administration appears determined to kill NAFTA. Canada and Mexico will continue to push for compromise and pray for a miracle. But at this moment, a bad end appears more likely than not.
The protectionists are winning. The North American experiment may be lost.
John Ibbitson