Talking Trade blog
Living with American uncertainty
Published 03 June 2017
Vancouver, Canada—As the United States continues to defy expectations, choosing to stand with Nicaragua and Syria in issues like climate change, and refusing to sign off on boilerplate diplomatic language in various international forums like the G20 and APEC, other nations have struggled to figure out their own path forward.
Fallout from the turmoil could be seen this week in Canada. At two different events, I watched officials and trade policy experts grapple with a new uncertainty and a sense of urgency not seen in decades.
Canada is proudly celebrating its 150th anniversary this year. For much of its history, it has been intertwined with the United States.
Canada and the United States have been strong foreign and security allies in the post-war era.
The start of the US-Canada Free Trade Agreement in 1987 and later expanded to become the North American Free Trade Agreement (NAFTA) with the addition of Mexico, only cemented the deep economic ties between the two countries. While there have been bilateral irritants over the years, these have been mostly minor in nature.
Canada joined the United States and others in the Trans-Pacific Partnership (TPP) negotiations with Mexico in 2012. All three partners used the talks as an opportunity to update NAFTA rules and gain additional benefits that were only possible as part of a larger agreement with more parties at the table.
But, of course, once Donald Trump came into office, he withdrew the United States from the TPP and has now started the official clock on the renegotiation of NAFTA.
This has left Canada grappling with an entirely new set of circumstances. The TPP was meant to be the update of NAFTA.
The US administration, however, does not see it this way. The question in Canada is how, exactly, does the team in Washington view the upcoming NAFTA negotiations? How much of the TPP will find its way into the NAFTA update? What new demands will be on the table? What does Canada want that goes beyond the TPP?
The NAFTA negotiations have implications for Canada beyond simply the talks in Washington. If the United States is no longer a reliable partner, then Canada needs to start thinking about a different approach. It needs to think about this now and it needs to do so quickly.
Canadian officials appear to have adopted a similar strategy to many other countries. First, they have tried to figure out what the US is likely to want. They have dispatched various delegations to DC to have conversations with the President and others. Second, they have started discussions with other countries.
For Canada, this means starting negotiations with China on a free trade agreement. These talks will likely take time to conclude, hence the urgency in beginning now.
Other steps include moving ahead with the TPP11. This is an already concluded agreement that grants Canada access to 10 other markets, including seven Asian countries (Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam). At the moment, Canada has preferential access to just one market in Asia—South Korea. Given the rapid growth of markets in Asia, Canada can ill afford to be locked out of Asia--especially at a time of growing turmoil in North America.
The TPP11 is quite beneficial to Canada, including granting access for Canadian food, agricultural, forestry and energy products into markets like Japan. It also helps smaller firms in Canada sell services and use e-commerce.
Other trade agreements may well be under consideration.
Officials are also stepping up their efforts to grow new markets in the region. For example, during his trip to Vietnam for APEC, Canada’s trade minister also swung through other Asian countries to discuss Canada’s export items like lumber. These types of trips and trade missions will likely increase as Canada works to diversify its exports and wean itself off reliance on the American market.
Something similar is likely to be taking place in nearly every other country that has dealings with the United States. While Canada is feeling the heat more closely than most, given the running clock on NAFTA and the strength of bilateral economic ties, many countries are also struggling to decide on the right policies to handle uncertainty coming from the Americans.
However, with each passing day, some of the uncertainty appears to be receding. Statements like this one from Trump, make it clear that this is a very different sort of America: “At what point does America get demeaned? At what point do they start laughing at us as a country? We don’t want other leaders and other countries laughing at us anymore. And they won’t be.”
It’s not just Trump. US Commerce Secretary Wilbur Ross and the US Trade Representative Robert Lighthizer also supported the withdrawal from the Paris Climate Accord. Both men have backed up the importance of putting America first in all aspects of policy making.
If the United States really is going to be taking itself out of the game, the decision making for everyone else gets easier. It is not just an option to find new partners for trade, it is fast becoming a requirement.
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