President Trump’s recent brag about discussing trade with Canadian Prime Minister Justin Trudeau in brazenly bad faith — insisting, in admitted ignorance, upon the existence of a Canadian trade surplus, then demanding “one of our guys” find facts to fit his predetermined conclusion — seems on the surface to be a story far more about the personality of the United States president than any deeper reality of the North American economy. In such a context, it’s certainly easy to muster instinctive sympathy for Canada’s side in the trade talks, with Ottawa cast as the hapless victim of a mercurial White House.
Locked in tough negotiations, Trudeau’s government would certainly prefer a Trump-centric analysis to be the dominant understanding of Canadian voters, and the go-to excuse if North American Free Trade Agreement renegotiations do wind up failing — an outcome that could have dire consequences for the Canadian economy and perhaps for the prime minister’s political fortunes.
Yet buried within Trump’s braggadocio is a kernel of truth. Canada, in some small but important ways, has indeed “outsmarted” the United States on trade, and it is not entirely irrational for Americans to be unsatisfied with the Canada side of the NAFTA status quo. One can certainly argue as to whether, in the grand scheme of things, this is really the most pressing problem for the White House to be exerting energy to correct, or whether the most extreme course-correction — trashing a flawed trade deal rather than making peace with its imperfections — would be in anyone’s best interest. But to claim Canada is entirely without sin in the relationship is to succumb to simplistic anti-Trump contrarianism and absolve Ottawa from self-reflection on its own responsibilities to modernize economic relations with the United States.
It is impossible to understand the Canada-U.S. trade relationship without an appreciation for Canada’s unique psychological anxiety about being conquered by the United States, and the savvy manner in which Canadian special interests have capitalized on this fear to push protectionist exemptions for themselves in the name of “sovereignty.” As she herself has noted, Canada’s foreign affairs minister, Chrystia Freeland, is the daughter of a politician who, like the rest of progressive Canada, campaigned viciously against free trade with the United States during Canada’s hysterical 1988 election on the issue, and the fact that NAFTA is as long and complicated as it is reflects concessions to Canadian politics as much as anything else. Germany and France — countries that have been at war twice in the past century — today enjoy a more comprehensive free-trade relationship than model neighbors Canada and the United States, and there’s no good explanation for this beyond deeply ingrained national paranoia. Canadians have zero credibility tut-tutting Brexit, the National Post’s Colby Cosh once quipped, given they inhabit “a political entity defined by its perpetual rejection of a continental political union.”
The Trudeau administration’s negotiating position takes it for granted that carve-outs must remain for any Canadian industries that are currently exempted from NAFTA or otherwise protected by some questionable Canadian policy. This includes Canada’s right to heavily tariff U.S. dairy, eggs and poultry to protect the interests of politically valuable Quebec farmers; Canadian banking and telecommunication regulations explicitly designed to discourage American competition with Canada’s “sacred cow oligopolies”; the Canadian conception of how its softwood lumber industry works (run in a relatively statist way — but don’t call it subsidized!); high import fees for American goods purchased by Canadians online; and the vast latticework of rules and handouts the Canadian government uses to undermine the penetration of U.S. entertainment in the name of safeguarding “Canadian culture.” On these fronts, and others, Canada’s Liberal government is no less irrationally protectionist than Trump’s White House, but the progressive gloss of Canadian patriotism helps mask the appearance of regressive chauvinism.
What about the trade deficit? Well, that seems to be very much in the eyes of the beholder — or at least the nationality of the bureaucrats measuring it. As Bloomberg reported, Ottawa’s statisticians claim their country does indeed have a trade surplus with the United States, while the Americans claim the opposite. This disparity, “a $22.3 billion difference between the two measures,” may have inspired Trump’s claim of losing “$17 billion a year” to the Canadians, and Freeland’s spokesman even tactically conceded the disparity with a defensive claim that “we’re using their own data” to disprove the president’s allegation. (The official position of the Canadian government — as with most economists — is that deficits and surpluses are an irrelevant metric for evaluating trade in the first place.) In any case, the sheer magnitude of the U.S.-Canadian economic relationship — the two countries trade more than a billion dollars of goods a day — makes even a seemingly imposing disparity like $17 billion a rounding error at best. The two nations have a deeply egalitarian trade partnership, even if there remain many devils in the details.
Canadians have much to gain from a better, more inclusive NAFTA, including easier access to cheaper U.S. goods, and a healthier market economy stimulated by greater U.S. competition with often sclerotic Canadian industries. Yet Canadians also deserve to have faith that talks on the future of free trade with the United States will be conducted in good faith, with negotiations based on shared facts, not demagoguery and catch phrases. The alternative is a future doomed to exacerbate the most regressive economic factions in both nations, at the expense of a relationship with no excuse for being poor.