The president on Friday even suggested the possibility that NAFTA could be replaced by separate bilateral deals with Canada and Mexico.
In response to the White House’s saber-rattling — that Canadian steel and aluminum imports represent a threat to national security — foreign minister Chrystia Freeland struck an incredulous note on CNN. “Seriously?” “The idea that we are somehow a national security threat to the United States is quite frankly insulting and unacceptable,” Trudeau said on NBC News’s “Meet the Press.”
“That is one of the strongest statements I’ve seen from a prime minister on any occasion,” says Don Campbell, who was deputy minister of trade during the 1992 NAFTA negotiations.
Tough talk, yes.
Far less clear is whether Canada’s multi-front response — a retaliatory threat of dollar-for-dollar tariffs on a range of strategically chosen U.S. products; a flat refusal to a sunset clause on NAFTA; and a claim made in tandem with the European Union, submitted Friday to the World Trade Organization — will force Trump to temper politically motivated stances that have drawn criticism from almost every quarter.
Few Canadian trade experts question the necessity of the Trudeau government’s move to call the president’s bluff. But, as Campbell adds, “I don’t think Canada’s tariffs will have any real effect on Mr. Trump.”
“I’m not sure there’s much more Canada can do,” adds John Boscariol, who leads the international trade law group at McCarthy Tetrault, in Toronto.
Tactically, the Canadian government appears to be attempting a carrot-and-stick approach: a month to provide a diplomatic buffer for working out concessions from a mercurial president prone to changing course, plus a list of U.S. goods targeted for tariffs selected to exact maximum political advantage south of the border while minimizing consumer pain at home.
In a strategy honed during Stephen Harper’s term as prime minister, Canadian officials, both federally and provincially, have taken to shadowing key congressional figures who either control important committees or represent districts with producers that will bear the brunt of Canada’s import duties.
Yet as Boscariol and others trade observers here point out, the math suggests that Canada’s counter-measures alone can’t inflict much in the way of real pressure.
After all, exports account for about one-third of Canada’s GDP, and Canada is about one-tenth the size of the United States in population. In a dollar-for-dollar retaliation, the overall impact of the tit-for-tat measures is invariably felt more keenly north of the border than south. As University of Toronto political scientist David Wolfe says, “It will be hugely disruptive for the Canadian economy generally and south-western Ontario [where the bulk of Canada’s car industry is located] in particular.”
Ironically, the Trump administration’s pledged tariffs on steel and aluminum imports from Canada, the European Union and Mexico will cause more consumer disruption than Canada’s potluck of counter-measures, particularly with aluminum — 90 percent of which comes from abroad (Canadian producers supply almost half that total).
What happens next is anyone’s guess. The Trump administration has initiated a virtually unprecedented national security trade action under Section 232 of NAFTA. Section 232 is a “black box” with few precedents, says former federal trade official Hugh Stephens, now an executive fellow with the University of Calgary’s School of Public Policy. But he points out, the argument seems destined to fail because Canada and the United States have a seven-decade history of highly integrated defense manufacturing through NATO and NORAD, and almost 50 years of liberalized trade in auto parts.
Canada and the European Union have initiated a case at the World Trade Organization, claiming that the U.S. tariffs are illegal. But Boscariol says the risk is that the United States could simply disregard eventual WTO sanctions while signaling to other nationalist regimes that they, too, can ignore decades of international trade law. “In the long run,” he notes, “I think that’s the biggest concern here.”
These cases will take months or longer to produce results. In the short term — with a Group of Seven summit set for this weekend and the threat of an ever-widening trade war growing more imminent — some Canadian observers have found themselves pondering parallels to key historic moments when previous American presidents pulled up the drawbridge of trade: the Smoot-Hawley Tariff of 1930, which imposed steep duties on hundreds of items, and Richard Nixon’s move to impose across-the-board tariffs in 1971 after declaring that he can’t stabilize a faltering economy “with one hand tied behind [my] back.”
In the case of the former, Campbell says, then-president Herbert Hoover supported these moves. “World trade came to a halt,” he adds, triggering the Great Depression and ultimately paving the way for Franklin D. Roosevelt’s New Deal.
With the latter, observes University of Toronto political scientist John Kirton, co-founder of the G7 Research Group, Nixon’s desperate actions set the scene, in 1975, for the creation of the body now known as the G-7 and an era of steadily expanding international trade liberalization under the General Agreement on Tariffs and Trade (GATT) and then the WTO.
The point of both stories is that the accumulation of global reaction to such protectionist outbursts eventually forces a return to more rational trade policy. As Campbell comments, if he were in government right now, his advice to the prime minister would be: “Keep cool, stay the course and try to play this thing out.”