NAFTA 2.0 won’t end trade disputes

If anything, we can expect several years of trade spats and arguments with the Americans, much in the way we were trapped in ongoing constitutional debates during the Quebec “neverendum” era of the 1980s and ’90s.

Between 2005 and 2014, the U.S. initiated just two anti-dumping and countervailing duty investigations. Between 2015 and 2018, there were 11, according to Bloomberg LP. Clearly, there’s a contagion of U.S. trade actions that’s unlikely to stop with a new NAFTA. And there’s one disturbing detail to think about: most of those trade complaints preceded Donald Trump taking office.

Let’s face it, much of the U.S. political class is highly protectionist and believes free trade applies only when the U.S. exports its goods to other nations, just as so many ordinary Americans believe their jobs are under threat of being exported to other countries. That the U.S. unemployment rate is at an 18-year low of 3.9% doesn’t matter.

As former Canadian trade envoy Gordon Ritchie has noted, consumer interests don’t count for much in Washington, D.C. Seeking trade redress from the U.S. Department of Commerce is too easy for vested interests at any time they feel the effects of foreign competition.

Trade protectionism in the U.S. may not be as severe today as it was in the era of the Smoot-Hawley Tariff Act of 1930, but protectionism remains very much part of that country’s DNA.

Which is why the Office of the U.S. Trade Representative has been busy blocking reappointment of trade dispute judges at the World Trade Organization with whom the U.S. administration disagrees.

Canadian exporters’ troubles at the U.S. border stand to increase under a revised NAFTA because of its emphasis on rules about country of origin. American officials at the border are notorious for their subjective and arbitrary judgments.

That Canadian exporters will be sideswiped in the U.S.’s steel war with China is inevitable. U.S. officials will be suspicious of China’s steel finding its way into Canadian goods, just as so many U.S. officials believed – wrongly – that the 9/11 terrorists entered their country from Canada. Facts won’t matter much in the Land of Urban Myth.

When the original NAFTA went into effect in 1994, Canadian business travellers suddenly found themselves subject to intense scrutiny at the U.S. border. This was because of American suspicions about Mexican business travellers, and customs officials needed to appear even-handed.

Following up the original NAFTA with a customs treaty with the U.S. would have been wise. When NAFTA 2.0 finally is settled, subsequently seeking a customs treaty will be just as wise – particularly regarding how rules of origin will be applied.

To look beyond Trump’s presidency also would be wise. These days, Trump is in a truly odd situation: his chances of being re-elected are far better than of him actually staying in office for his first term. Impeachment or forced resignation cannot be discounted as reasonable contingencies. Vice President Mike Pence would be a less vulgar and mercurial president.

But there’s no reason to expect any change beyond a subtler form of protectionism so long as so many American voters feel threatened.

At some point, Americans will realize unbridled protectionism is costing them influence on the world stage, just as that attitude did during the Great Depression. But, in the meantime, the Americans will be more than just the noisy neighbours downstairs to Canada’s current – and future – governments.

In 1923, U.S. President Warren Harding stood in Vancouver’s Stanley Park and urged both countries to treasure “the world’s largest undefended border.” That rhetoric would become an official policy that served both countries well until the 21st century.

Cooler heads in both countries should think hard about how to proceed beyond NAFTA 2.0 when it’s finally signed.