There does not appear to be much art to this particular deal. President Donald Trump's effort to renegotiate the North American free-trade agreement – or amend it or suspend it or cancel it or whatever he plans to do with it on any particular day – has never been very clear in its ambition or message.
His near-daily threats to pull the plug on the deal may simply be his ham-fisted attempt at negotiating bluster. His negotiators may be able to ignore him. However, if he is driven into one of his moments of pique, those threats may prove to be very real. He could end it tomorrow if he wishes, with painful consequences for many states and devastating ones for Canada. Or (more likely) he could leave it hanging and impose protectionist measures that would render NAFTA next to worthless. He has bailed from even more important international pacts for even less rational reasons.
We need to treat the Trump years, even if we get through them unscathed, as a stress test. It's a test Canada ought to take: Like a jetliner that needs to prove that it can fly with one engine, Canada needs to prepare its economy and its institutions for a world economy with a lot less globalization.
Canada is inordinately dependent on the global economy. Owing to the small size of our domestic market, our investment base and our sectors in many industries, Canada depends more than ever on foreign investment, on international markets for its exports, on international networks of services and on worldwide supply chains (the products Canada exports have at least a fifth of their components made in foreign countries).
But globalization is on the retreat, and has been, by some measures, for a decade. We need to see how well we can manage with less of it.
This is not just a matter of political threats, although the possibility that another Donald Trump will emerge somewhere, or that another Brexit will withdraw another country from the wider economy, is highly likely in coming decades. A softer form of protectionism is becoming dominant in many major economies. "Buy national" programs, which limit government procurement to domestic companies (and thus give a huge competitive advantage to domestic firms) are prevalent in China, India and, of course, the United States; they appear to be spreading.
Second, globalization is threatened by the technologies and geographies of trade. Those global supply chains that are so crucial to Canadian products are on the retreat.
"A mix of social and technological trends are making it less viable for companies to have their supply chains strung out around the globe," writes Finbarr Livesey, a Cambridge University technology and commerce scholar, in his new book From Global to Local: The Making of Things and the End of Globlization. "Companies, even in high-volume sectors, are revisiting their decisions from the 1990s to take their production out of their home country."
The "offshoring" revolution of the 1990s and 2000s, of which Canada was a beneficiary, is being hauled back into domestic suppliers in a trend called onshoring, reshoring, nearshoring or backshoring. That's partly because it's no longer a great deal for many companies to get components made abroad: China is no longer a low-wage country, the shipping and fuel costs are much higher today, and many companies prefer the speed and flexibility of one-country supply chains to the complexity of worldwide offshoring.
It's also because the increasingly automated technology of manufacturing and services, and the political realities in many Western countries, are making it desirable to deglobalize. The Obama-era manufacturing renaissance in the United States, which saw American companies such as Apple begin to make parts in the States again and Chinese suppliers such as Foxconn opportunistically open factories there, was a product of more competitive wages in the United States, but also of political optics. If relations become less peaceful between the United States and China, we can expect global trade and investment links to retreat further – and Canada will feel that, too.
We need to make our economy Trump-proof so it can withstand future, larger, blows to globalization. Canadian companies have become used to relatively easy access to worldwide consumer markets, supply chains and clients and contracts for services. How well will they fare if they have to fall back on a mainly Canadian economy, or a much smaller ring of international outlets?
We may never thank Mr. Trump for making us ask such questions, but they needed to be asked.
Doug Saunders